Fitch: CenterPoint's Ratings Unaffected by Investment in Enable; Strategic Initiatives Contemplated
CenterPoint Energy Inc.'s (CNP; 'BBB'/Stable Outlook) $363 million
investment in Enable Midstream Partners' (Enable; 'BBB-'/Stable Outlook)
perpetual preferred units does not affect CNP's ratings, according to
Fitch Ratings. Separately, CNP's announcements regarding strategic
alternatives for Enable and its electric utility subsidiary may have
mixed credit implications.
On Jan. 29, 2016, CNP announced that it will invest proceeds from an
early redemption of Enable's $363 million note due in 2017 to
CenterPoint Energy Resources Corp (CERC; 'BBB'/Stable Outlook) in
Enable's 10% Series A non-cumulative redeemable perpetual preferred
units. This transaction will enhance Enable's financial flexibility by
eliminating a near-term debt maturity. This is consistent with Fitch's
expectations that CNP would support Enable during times of financial
stress such as the current period of constrained capital markets access
for all Master Limited Partnerships.
Fitch believes there is adequate headroom in CNP's credit metrics to
absorb this level of investment in Enable. However, should Enable's
credit profile further deteriorate, Fitch would evaluate further
parental support against the need for CNP to maintain its own credit
profile at current levels.
Enable will receive 100% equity credit for the non-cumulative Series A
and 50% equity credit for the cumulative Series B upon conversion under
Fitch's hybrid securities methodology. However, these preferred units,
will alter Enable's distribution payment priority to some extent between
CNP and its partner OGE Energy Corp (OGE; 'A-'/Stable Outlook), as they
rank senior to Enable's common units with respect to the payment of
distribution or distribution of assets upon liquidation. Additionally,
if the non-cumulative Series A units are converted to the cumulative
Series B, they will become more debt-like instruments. The credit
implication of this transaction and Enable's financial performance on
OGE will be addressed separately and in conjunction with the pending
resolution of its environmental compliance plan.
On Feb. 1, 2016, CNP announced that it is evaluating strategic
alternatives for its investment in Enable, including a tax free sale or
spinoff. This announcement demonstrates CNP's recognition of investors'
changing risk tolerance levels in light of the struggling midstream
segment, which Fitch views favorably. Such a transaction would
materially improve CNP's risk profile since its businesses would be
comprised almost entirely of regulated electric transmission and
distribution business through CenterPoint Houston Electric (CEHE;
'BBB+'/Stable Outlook) and natural gas distribution operations at CERC.
CNP's ratings in such a scenario would be assessed based on a
significantly improved risk profile and its ability to reduce parent
holding debt commensurate with the loss of earnings and cash flows from
CNP also announced that it is exploring the possibility of a REIT
structure for part or all of its electric utility business. Fitch would
generally view the REIT structure as negative to the existing
bondholders given the reduced financial flexibility as compared to other
utility holding companies due to the requirement to distribute at least
90% of net income to shareholders to maintain the REIT status,
continuous reliance on capital markets to finance growth capex and
uncertainty regarding regulatory treatment of such entities.
Additional information is available at 'www.fitchratings.com'.
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SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
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CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
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Copyright Business Wire 2016
Source: Business Wire
(February 3, 2016 - 12:00 PM EST)
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