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Rating Action:

Moody's downgrades TECO Energy and Tampa Electric Company's ratings upon Emera acquisition close

06 Jul 2016

Over $3 billion of rated debt affected

New York, July 06, 2016 -- Moody's Investors Service (Moody's) downgraded the senior unsecured ratings of TECO Energy Inc. (TECO) and its financing subsidiary, TECO Finance, Inc. to Baa2 from Baa1; and the issuer and senior unsecured ratings of Tampa Electric Company (TEC) to A3 from A2. These rating actions conclude the review for downgrade that commenced on June 1, 2016 as a result of Emera Inc.'s (Emera, Baa3 stable) acquisition of TECO. Emera's acquisition of TECO closed on July 1, 2016. The rating outlooks for TECO, TECO Finance and TEC are stable.

"TECO's downgrade is primarily driven by the significant incremental debt issued across the Emera parent holding companies," said Jeff Cassella, Vice President -- Senior Analyst. "The downgrade also factors in the lack of any meaningful ring-fence type provisions designed to insulate TECO Energy or its principal utility subsidiary, Tampa Electric Company."

RATINGS RATIONALE

TECO's Baa2 senior unsecured rating is primarily driven by the solid credit quality of its principal subsidiary, TEC, which operates under Florida's highly supportive regulatory framework. The rating also reflects TECO's solid financial metrics and incorporates the modest cash flow and regulatory diversity provided by New Mexico Gas Company (not rated).

TECO's rating is heavily influenced by TEC's rating, but also reflects the roughly 30% ratio of TECO's holding company debt (issued at TECO Finance) as a percentage of the TECO family consolidated debt. TECO Finance's debt is guaranteed by TECO, therefore TECO Finance has the same rating.

Furthermore, Emera's holding company debt, which includes the effects of TECO's consolidated debt, produces a ratio of holding company debt to total consolidated debt approaching 50%. This capital structure leads to material structural subordination and wider rating notch differential even though the holding company is supported by a diversified group of operating subsidiaries. For calculation purposes, Moody's includes the debt at TECO Finance as holding company debt and includes the Maritime Link project debt financing in Emera's total consolidated debt.

Tampa Electric Company's A3 senior unsecured rating reflects Florida's highly supportive regulatory framework, which allows a suite of timely cost recovery mechanisms. These mechanisms provide more stable and consistent cash flows, which enable the utility to generate strong financial metrics. TEC's rating incorporates a view that the utility will earn close to its allowed ROEs of about 10% and maintain its ratio of CFO pre-W/C to debt in the mid-to-high 20% range. TEC's rating is constrained by the significant amount of debt held at its parent company, TECO, as well as its ultimate parent, Emera.

Rating Outlook

TECO and TEC's stable rating outlooks reflect our expectation that the Florida regulatory jurisdiction remains supportive and provide timely recovery mechanisms for prudently incurred costs and investments. The stable outlook also incorporates our view that TECO and TEC's financial metrics will remain strong including TECO's CFO pre-W/C to debt in the mid-to-high teens and TEC's CFO pre-W/C to debt in the mid-to-high 20% range. The stable outlook also assumes that TECO or Emera will not materially increase their intermediate holding company or parent level debt further that could cause downwards rating pressure across the entire corporate family.

Factors that Could Lead to an Upgrade

TECO's rating could be upgraded if TEC's rating was upgraded. In addition, TECO's rating could be upgraded if the debt levels at TECO and Emera were significantly reduced to where holding company debt was below 40% of consolidated debt on a sustained basis. Furthermore, the regulatory jurisdictions where TECO's utility subsidiaries operate need to remain credit supportive, particularly TEC's regulatory environment in Florida, and TECO's ratio of CFO pre-W/C to debt was sustained in the high teens range.

TEC's rating could be upgraded if the debt levels at TECO and Emera were significantly reduced to where holding company debt was below 40% of consolidated debt on a sustained basis. In addition to a reduction in holding company debt, the Florida regulatory environment needs to remain credit supportive and TEC's financial metrics were to remain strong including CFO pre-WC to debt in the high 20% range on a sustained basis.

Factors that Could Lead to a Downgrade

TECO's rating could be downgraded if TEC's rating was downgraded. In addition, a rating downgrade could occur if the company were to substantially increase its level of parent debt relative to consolidated debt; or if it were to invest in other non-core unregulated business. The rating would also experience downward pressure if there was a sustained deterioration in financial metrics, such as its ratio of CFO pre-W/C to debt were to decline below 15% on a sustained basis.

Furthermore, TECO and its subsidiaries' ratings could be downgraded if its ultimate parent, Emera were to increase its parent level debt or grow its non-regulated businesses such that the TECO family experiences further contagion risk.

TEC's rating could be downgraded if Florida's regulatory framework becomes less supportive such that regulatory lag increases or TEC's ability to recover its costs in a timely manner is negatively affected. Separately, TEC's ratings could be negatively affected if contagion risk exposure to its new parent, Emera or its affiliated businesses increases due to incremental leverage or additional unregulated business investments. In addition, a downgrade could occur if its financial metrics weakened such that CFO pre-W/C to debt were to decline to the low 20% range on a sustained basis.

TECO Energy, Inc. is an intermediate holding company whose principal subsidiary is Tampa Electric Company, a regulated electric and gas utility in Florida which composed 94% of TECO's operating earnings from continued operations in 2015. TEC's electric business, Tampa Electric, provides retail electric service to over 725,000 customers in West Central Florida, while TEC's gas business, Peoples Gas System, serves over 365,000 customers in Florida's major metropolitan areas. TECO also owns New Mexico Gas Company, a natural gas local distribution company serving 520,000 primarily residential customers in New Mexico, which approximates 60% of the state's total population. TECO guarantees the approximately $1 billion of debt issued by its rated financing subsidiary arm, TECO Finance, Inc. TEC and PGS are regulated by the Florida Public Service Commission, while NMGC is regulated by the New Mexico Public Regulation Commission. On July 1, 2016, TECO Energy and its subsidiaries were acquired by Emera Inc. for an aggregate purchase price of approximately $10.4 billion, including the assumption of approximately $4.1 billion of debt.

Ratings Downgraded:

..Issuer: TECO Energy, Inc.

....Senior Unsecured Rating, Downgraded to Baa2 from Baa1

....Senior Unsecured Shelf Rating, Downgraded to (P) Baa2 from (P) Baa1

..Issuer: TECO Finance, Inc.

....Senior Unsecured Rating, Downgraded to Baa2 from Baa1

....Senior Unsecured Shelf Rating, Downgraded to (P) Baa2 from (P) Baa1

..Issuer: Tampa Electric Company

.... Issuer Rating, Downgraded to A3 from A2

....Senior Unsecured Rating, Downgraded to A3 from A2

....Senior Unsecured Shelf Rating, Downgraded to (P) A3 from (P) A2

..Issuer: Hillsborough County Ind. Dev. Auth. FL

....Backed Senior Unsecured Revenue Bonds, Downgraded to A3 from A2

....Backed Underlying Senior Unsecured Revenue Bonds, Downgraded to A3 from A2

..Issuer: Polk County Industrial Devel. Authority, FL

....Backed Senior Unsecured Revenue Bonds, Downgraded to A3 from A2

....Backed Underlying Senior Unsecured Revenue Bonds, Downgraded to A3 from A2

Outlook Actions:

..Issuer: TECO Energy, Inc.

....Outlook, Changed To Stable from Rating on Review

..Issuer: TECO Finance, Inc.

....Outlook, Changed To Stable from Rating on Review

..Issuer: Tampa Electric Company

....Outlook, Changed To Stable from Rating on Review

The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in December 2013. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Jeffrey F. Cassella
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

James Hempstead
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades TECO Energy and Tampa Electric Company's ratings upon Emera acquisition close
No Related Data.
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