Fitch Ratings has assigned an 'A-' rating to
These debentures are pari passu with
The Issuer Default Ratings for
Key Rating Drivers
Exposure to Regulated and Contracted Assets: NextEra's business mix, which is primarily comprised of regulated investments and long-term contracted nonregulated renewable assets, is supportive of its credit profile. The favorable shift in the cash flow mix is driven by base rate increases at
Fitch calculates the proportion of regulated EBITDA in the overall business mix to be approximately 75% in 2022 and expects it to decline to 70% by 2025. Within the nonregulated businesses, management's emphasis remains on long-term contracted renewable generation. Fitch expects the adjusted EBITDA contribution from both regulated and contracted businesses to be approximately 90%-95% over the next few years.
Leading Position in Renewables: Fitch believes NextEra is strongly positioned to take advantage of the energy transition underway in the
Given its market leading position and scale in renewables, NextEra has successfully navigated industry headwinds created by supply chain disruptions, import tariffs and interconnection issues without material disruptions. Despite recent increases in capital, operating and financing costs, contracted renewables remain competitive given the increase in power prices. Management has a strong track record of lowering O&M costs, and its scale gives it significant advantage over competition.
Elevated Capex: Fitch expects consolidated capex to be approximately
Management's updated funding plan relies on tax transferability provisions of the IRA and renewable asset sales to third parties, including build-operate-transfer transactions, in lieu of asset drop-downs to
Near-Term Weakening of Credit Metrics: On a fully consolidated basis (including nonrecourse project debt), Fitch expects NextEra's FFO leverage to remain elevated in 2023-2024 to reflect significantly higher capex at
Adjustment for Non-Recourse Debt: NextEra's credit metrics, as reported, have historically shown more leverage than a median 'A-' financial profile for a utility or parent holding company. A portion of the renewable generation portfolio is financed with project debt that has limited or no corporate recourse. However, these projects tend to be highly leveraged (with typically a low investment-grade profile), which weakens the consolidated leverage metrics for NextEra.
Fitch believes a better way to analyze NextEra's metrics is to deconsolidate a majority of the project-financed entities and only include the upstream distribution from these entities in NextEra's credit analysis. The off-credit treatment to the limited recourse debt reflects Fitch's assumption is that NextEra would walk away from these projects in the event of financial deterioration, including those projects where a differential membership interest has been sold. NextEra's commitment to not buy the remaining ownership interest in its subsidiary,
Deconsolidating project debt typically results in 60bps-80bps lower leverage compared with consolidated leverage. As such, adjusting for non-recourse debt, Fitch expects FFO leverage for NextEra to be approximately 4.5x in 2023, which is 20bps above our 4.3x adjusted FFO leverage negative sensitivity. Fitch expects adjusted FFO leverage to decline to 3.6x in 2025 given Fitch's expectation that NextEra will rely more on project debt to finance its renewable investments than it has in the recent past.
Derivation Summary
NextEra compares favorably with peer parent holding companies
All of NextEra's peers are facing material project execution risk due to the construction of large projects, which include the Vogtle Unit 4 nuclear project at Southern, a large offshore wind project at Dominion and potential LNG projects at Sempra's midstream subsidiary. The corporate debt at NextEra, Sempra and Dominion is structurally subordinated to non-recourse debt at their project subsidiaries. NextEra's ownership interest in NEP adds organizational structure complexity its peers do not have.
NextEra's proportion of consolidated EBITDA generated from regulated utility subsidiaries is approximately 70%75%, which is less favorable compared with Southern (80%), Sempra (80%) and Dominion (85%-90%). NextEra's projected consolidated FFO leverage of 4.5x by 2025 is stronger than projected metrics for Southern (4.7x by 2024) and Dominion (5.4x), and comparable to that for Sempra (mid to high 4.0x).
Key Assumptions
Annual retail sales growth of 0.5% at FPL over 2024-2025;
Rate increases for FPL as per 2021 rate order;
O&M and other expenses growth at FPL relatively flat from 2024 to 2025;
Capex at regulated and non-regulated businesses of approximately
Renewable projects growth toward the top end of management's forecasts;
Balanced funding mix at FPL and reliance on tax equity, project debt and hybrid debt at
Limited commodity exposure and near-term interest rate exposure based on existing hedge position.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Positive rating actions for NextEra appear unlikely at this time.
Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Consolidated FFO leverage above 4.5x on a sustainable basis;
After adjusting for non-recourse debt, FFO leverage above 4.3x on a sustainable basis as long as distribution derived from such non-recourse subsidiaries is less than 20% of the consolidated FFO;
Any deterioration in credit measures that result from higher use of leverage or outsized return of capital to shareholders;
An aggressive acquisition or financial strategy at NEP, rising conflict of interest between NextEra and NEP, or predominantly shareholder focused use of proceeds from the sale of assets to NEP;
A change in strategy to invest in noncontracted renewable/pipeline/electric transmission assets, more speculative assets, or a lower proportion of cash flow under long-term contracts;
Any change in current regulatory policies at
Changes in tax rules that reduce NextEra's ability to monetize its accumulated production tax credits, investment tax credits and accumulated tax losses carried forward.
Liquidity and Debt Structure
Strong Liquidity: On a consolidated basis, NextEra had
Committed corporate credit facilities for NextEra and FPL aggregated to approximately
Issuer Profile
NextEra owns FPL, which is the largest electric utility in the state of
Summary of Financial Adjustments
Fitch allocates 50% equity credit to
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