Approximately $9 billion of debt securities downgraded
New York, June 09, 2020 -- Moody's Investors Service, ("Moody's") downgraded
the ratings of Sempra Energy (Sempra), including its senior unsecured
and Issuer rating to Baa2 from Baa1 and its junior subordinate rating
to Baa3 from Baa2 (see full debt list below). The rating outlook
of Sempra is stable. This rating action concludes the review of
Sempra's long-term ratings initiated on 15 April 2020. Concurrently,
Moody's assigned Baa2 ratings to the unsecured bank credit facilities
of Sempra ($1.250 billion) and Sempra Global ($3.185
billion), which are both scheduled to expire in May 2024.
Moody's also affirmed Sempra Global's P-2 short-term
rating for commercial paper and assigned Sempra Global a stable outlook.
Sempra Global is an intermediate holding company for subsidiaries other
than the group's regulated utilities. Sempra guarantees Sempra
Global's commercial paper and bank credit facility.
RATINGS RATIONALE
"Sempra's downgrade reflects weak consolidated financial metrics,
which have been consistently below our Baa1 downgrade threshold for the
past few years, and are expected to remain below that threshold
at least through 2022" said Nati Martel, VP-Senior
Analyst. "We see Sempra's ratio of cash flow to debt
hovering in the 16% range, which is more appropriate for
the Baa2 rating category, given Sempra's consolidated risk
profile."
Today's rating action also factors in the recent downgrades of key
subsidiaries Infraestructura Energetica Nova S.A.B.
de C.V (IEnova; Baa2 negative) and Southern California Gas
Company (SoCalGas; A2 stable). For IEnova, the rating
action largely reflected the deterioration in the creditworthiness of
its government related counterparties. In addition, SoCalGas'
exposure to a regulatory environment that exhibits above average volatility
requires stronger credit metrics compared to similar rated utility peers.
Sempra's downgrade also considers that it has some exposure to emerging
market risk through IEnova's operations in Mexico (Government of
Mexico, Baa1 negative), and that its California utilities
are subject to a high level of political risk and public scrutiny.
Sempra's Baa2 rating and stable outlook reflect that the regulated
utility subsidiaries' cash flows will represent around 80%
of cash flow with the non-volumetric long-term contracted
operations of IEnova and Cameron LNG, LLC (Cameron; A3 stable)
accounting for the balance. Moody's considers that the cash
flows of SoCalGas and San Diego Gas & Electric Company (SDG&E;
Baa1 positive) benefit from credit supportive recovery mechanisms and
the outcome of the 2019 regulatory proceedings. The diversification
of the non-regulated operations along with a growing rate base
in Texas, through its 80.45% owned subsidiary Oncor
Electric Delivery Company LLC (Oncor; A2 senior secured stable),
partially offsets the group's significant exposure to California.
The stable outlook considers Sempra's planned repayment of holding
company debt using the net proceeds of around $4.7 billion
received from the sale of its Latin American subsidiaries. The
stable outlook also recognizes that incremental debt to fund Sempra's
material investment program of $32 billion between the 2020-2024
period will continue to constrain consolidated financial metrics.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
Assuming no material increase in Sempra's business risk profile,
an upgrade of Sempra's rating is possible if it improves its consolidated
credit metrics, including a consolidated cash flow from operations
before changes in working capital (CFO pre-W/C) to debt ratio of
at least 17%, on a sustained basis. This threshold
assumes a material reduction in the group's construction risk following
the completion of the Cameron LNG project's train three expected
during the third quarter of 2020 with no additional LNG projects beyond
Energía Costa Azul, S. de R.L. de C.V.
(ECA) regasification terminal in Mexico. ECA is expected to achieve
a Financial Investment Decision (FID) later this year. If Sempra
moves forward with the construction of additional LNG projects beyond
ECA, Moody's would view this incremental effort as a credit
negative and require a higher CFO pre-W/C to debt ratio of 18%
for an upgrade to mitigate the resulting increase in the business risk
profile.
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
Assuming no material increase in Sempra's business risk profile,
including construction risk, a downgrade of Sempra's rating is possible
if its consolidated CFO pre-W/C to debt ratio falls below 14%,
on a sustained basis. The deterioration in the business risk profile
associated with Sempra moving forward with additional LNG projects beyond
ECA, could lead to a downgrade if CFO pre-W/C to debt falls
below 15%.
Downgrades:
..Issuer: Sempra Energy
.... Issuer Rating, Downgraded to Baa2
from Baa1
....Senior Unsecured Shelf, Downgraded
to (P)Baa2 from (P)Baa1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Baa2 from Baa1
....Junior Subordinated Regular Bond/Debenture,
Downgraded to Baa3 from Baa2
Assignments:
..Issuer: Sempra Energy
....Senior Unsecured Revolving Credit Facility,
Assigned Baa2
..Issuer: Sempra Global
....Senior Unsecured Revolving Credit Facility,
Assigned Baa2
Affirmations:
..Issuer: Sempra Global
....Senior Unsecured Commercial Paper,
Affirmed P-2
Outlook Actions:
..Issuer: Sempra Energy
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Sempra Global
....Outlook, Changed To Stable From
No Outlook
The principal methodology used in these ratings was Regulated Electric
and Gas Utilities published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1072530.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Headquartered in San Diego, Sempra Energy (Sempra) is a diversified
holding company that owns regulated electric and gas utilities as well
as subsidiaries that operate long term contracted assets in the United
States and Mexico. In April 2020, Sempra completed the sale
of its Peruvian operations, largely consisting of its 83.6%
interest in the utility Luz del Sur S.A.A, while completion
of the sale of its Chilean subsidiaries, including the utility Chilquinta
Energia S.A., is expected during the 2Q2020.
Sempra estimates that the net proceeds from the sale of these operations
could range between $4.55 and $4.85 billion,
pending its tax optimization initiatives, subject to adjustments
and closing conditions.
In May 2019, Sempra and Sempra Global entered into separate five-year
credit agreements, both expiring in May 2024. Under these
agreements, Sempra is permitted to borrow up to $1.25
billion while Sempra Global is allowed to borrow up to $3.185
billion. Sempra Global is an intermediate holding company for subsidiaries
other than the group's regulated utilities. Sempra guarantees
Sempra Global's CP program.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Natividad Martel
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Michael G. Haggarty
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
