Over $9 billion of debt affected
New York, June 29, 2011 -- Moody's Investors Service upgraded the long- and short-term
ratings of the debt and supported obligations of CenterPoint Energy,
Inc. (CNP, senior unsecured ratings to Baa3 from Ba1) and
its subsidiary CenterPoint Energy Resources Corp. (CERC,
senior unsecured ratings to Baa2 from Baa3). The ratings of CNP
other subsidiary CenterPoint Energy Houston Electric, LLC (CEHE,
Baa2 senior unsecured) were confirmed. The rating outlooks for
all three entities are stable.
RATINGS RATIONALE
These rating actions conclude a review for possible upgrade that Moody's
initiated in March following a favorable ruling by the Texas Supreme Court
(TSC) on CenterPoint's appeal of the stranded cost true-up
order that was issued by the Public Utility Commission of Texas (PUCT).
The appeal period for this decision ended earlier this month when the
TSC denied all motions for a rehearing, paving the way for CenterPoint
to file with the PUCT to recoup its award.
"The substantial cash proceeds that CenterPoint will receive will
enhance the company's financial flexibility over the next few years,
supporting an already improving trend in its fundamental credit profile,
" says Moody's vice president Mihoko Manabe.
This longstanding litigation stemmed from a 2004 order, in which
the PUCT disallowed $1.7 billion of pre-tax of stranded
costs that CenterPoint had requested to recover resulting from the transition
to competitive retail electric markets in Texas.
CenterPoint estimates the judgment to be approximately $1.8
billion pre-tax, which is subject to the PUCT's final
determination. The company will also request a financing order
for securitization bonds, which it expects to issue late this year.
It is Moody's understanding that the company will recover most of
its estimated reward, since many of the disputed costs in the TSC
decision have been well identified through many years of litigation.
CenterPoint has not yet decided how it will use the securitization proceeds,
but the rating upgrades and stable outlook are based on the company applying
those proceeds to a prudent mix of growth investments, debt reduction,
and modest stock repurchases. Moody's noted that although
the large amount of cash resulting from the securitization raises M&A
event risk, the ratings are based on CenterPoint financing any such
transaction so as to defend its investment grade status.
While the securitization debt could raise $1.8 billion in
cash, it will also add that much of new debt to CEHE's and
CNP's consolidated balance sheets. Moody's thus confirms
CEHE's ratings, since the company was upgraded just last year
and its credit metrics are still modest for its rating category.
For example, the company's cash flow from operations before
working capital changes-to-debt was 14% for the last
twelve months ended March 31, 2011. CEHE's Baa2 senior
unsecured rating, nevertheless, is supported by its relatively
low business risk compared to other electric utilities as a transmission
and distribution (T&D) only utility, lacking the operating risks
of power generation that its vertically integrated peers face as well
as the provider of last resort risks of other T&Ds.
The rating upgrades for CNP and CERC are a culmination of the positive
rating outlooks they had prior to the rating review, in recognition
of their solid financial performance and improving financial positions.
A series of rate increases and better rate designs have strengthened CERC's
gas distribution operations, while pipeline projects have increased
stable, rate-regulated revenues. The unregulated field
services segment has grown also, but its volume and price risks
have been mitigated in its contracts. CERC's cash flow pre-working
capital-to-debt was 21% for the fiscal year ended
December 2010, around the peak of seasonal borrowings.
CNP's consolidated performance has strengthened, reflecting
the rise in CERC's credit metrics. Its cash flow pre-working
capital-to-debt was 15% at year-end 2010.
The parent company's standalone credit quality, however,
has also improved gradually from the reduction in parent-level
debt and issuances of equity over the last few years.
The stable rating outlook anticipates CNP using the securitization proceeds
and financing its investments so as to maintain cash flow pre-working
capital-to-debt in the mid-teens on a consolidated
basis, in the low teens at CEHE, and the low 20% range
at CERC.
The ratings could go up if CNP applies the securitization proceeds so
as to sustain cash flow pre-working capital-to-debt
in the high teens on a consolidated basis, in the mid-teens
for CEHE, and the mid 20% range for CERC, without increasing
its overall business risk profile.
The ratings could be downgraded if CNP undertakes a transaction which
significantly increases its business risk profile and weakens its cash
flow pre-working capital-to-debt level to the low
teens on a consolidated basis, to the low 10% range for CEHE,
and the mid to high teens for CERC.
Upgrades:
..Issuer: Brazos River Authority, TX
....Senior Unsecured Revenue Bonds,
Upgraded to Baa3 from Ba1
..Issuer: CenterPoint Energy Resources Corp.
....Senior Unsecured Bank Credit Facility,
Upgraded to Baa2 from Baa3
....Senior Unsecured Shelf, Upgraded
to (P)Baa2 from (P)Baa3
..Issuer: CenterPoint Energy, Inc.
.... Issuer Rating, Upgraded to Baa3
from Ba1
....Multiple Seniority Shelf, Upgraded
to (P)Baa3, (P)Ba1, (P)Ba2, (P)Ba2 from (P)Ba1,
(P)Ba2, (P)Ba3, (P)Ba3
....Subordinate Conv./Exch.
Bond/Debenture, Upgraded to Ba1 from Ba2
....Senior Unsecured Bank Credit Facility,
Upgraded to Baa3 from Ba1
....Senior Unsecured Regular Bond/Debenture,
Upgraded to Baa3 from Ba1
..Issuer: Matagorda County Navigation District 1,
TX
....Senior Unsecured Revenue Bonds,
Upgraded to Baa3 from Ba1
Outlook Actions:
..Issuer: CenterPoint Energy Houston Electric,
LLC
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: CenterPoint Energy Resources Corp.
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: CenterPoint Energy, Inc.
....Outlook, Changed To Stable From
Rating Under Review
Confirmations:
..Issuer: Brazos River Authority, TX
....Senior Secured Revenue Bonds, Confirmed
at A3
....Senior Secured Revenue Bonds, Confirmed
at A3
..Issuer: CenterPoint Energy Houston Electric,
LLC
.... Issuer Rating, Confirmed at Baa2
....Senior Secured Regular Bond/Debenture,
Confirmed at A3
....Senior Secured Shelf, Confirmed
at (P)A3
....Senior Unsecured Bank Credit Facility,
Confirmed at Baa2
..Issuer: CenterPoint Energy Resources Corp.
....Senior Unsecured Commercial Paper,
Upgraded to P-2
....Senior Unsecured Commercial Paper,
Upgraded to P-3
..Issuer: Gulf Coast Waste Disposal Authority,
TX
....Senior Secured Revenue Bonds, Confirmed
at A3
..Issuer: Matagorda County Navigation District 1,
TX
....Senior Secured Revenue Bonds, Confirmed
at A3
..Issuer: Reliant Energy HL&P
....Senior Secured First Mortgage Bonds,
Confirmed at A3
The principal methodology used in this rating was Regulated Electric and
Gas Utilities published in August 2009.
CenterPoint Energy, Inc., is an electric and gas distribution
company headquartered in Houston, Texas.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Mihoko Manabe
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
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 upgrades CenterPoint Energy to Baa3
