Fitch Rates CenterPoint $250MM Notes ‘BBB-’; $150MM CERC Notes ‘BBB’
Fitch assigns a ‘BBB-’ rating to the $250 million of 5.95% senior unsecured notes due Feb. 1, 2017 issued by CenterPoint Energy, Inc. (CNP). CNP will use the proceeds from the note offering to repay its $255 million cash payment obligation in connection with the conversion and redemption of 2.875% convertible notes. Fitch also assigns a ‘BBB’ rating to the $150 million of 6.25% senior unsecured notes due Feb. 1, 2037 issued by CNP subsidiary, CenterPoint Energy Resources Corp. (CERC). The proceeds from the issuance of the CERC notes will be used to repay a portion of the $375 million of advances under CERC’s accounts receivable financing facility. The Rating Outlook of CNP and CERC are Stable.
CNP’s ratings are supported by ownership of CERC as well as its CenterPoint Energy Houston Electric (CEHE) subsidiary. Approximately 80% of CNP’s consolidated cash flow is generated by regulated utility and pipeline businesses, which lends stability to cash flow of the CNP group. Liquidity is considered satisfactory and there are limited debt maturities through 2009. CERC’s ratings are supported by its ownership of regulated utility and pipeline assets in growing markets.
Fitch’s primary rating concerns include uncertainty regarding the recovery of CEHE true-up balances and potential elimination of associated tax benefits as well as regulatory risks and uncertainties at the gas utilities. Fitch has concerns about the challenging regulatory environment in Texas and the slow pace of de-leveraging at CNP. In addition, CERC faces competition and construction risks, including rising labor and material costs associated with growth initiatives at the pipeline operations. Pipeline expansion initiatives include the Carthage to Perryville and Southeast Supply Header projects. Also, new affiliate rules issued by the Arkansas Public Service Commission could require CERC to restructure its organization and financing arrangements and may have an adverse affect on its ability to operate and finance its gas distribution business in AR.
CNP is a holding company that owns domestic energy delivery businesses. CEHE provides electricity to approximately 2 million customers in the Houston area. CERC operates Minnesota Gas and Southern Gas divisions that provide gas distribution service to approximately 3 million utility customers in AR, LA, MN, MS, OK, and TX, and, through subsidiaries, owns interstate pipelines and gathering systems and provides gas services.
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