El Paso Electric has been placed on review for downgrade by one of the major Wall Street bond rating agencies following the announcement the utility would be sold for $4 billion to a private equity firm.
Moody’s Investors Service placed El Paso Electric’s medium grade Baa1 rating on review, citing a weakening of the utility’s financial metrics and credit profile along with the potential impact on the company’s credit by the upcoming sale to JP Morgan’s Infrastructure Investments Fund, also known as IIF.
Moody’s also noted the lack of detail in IIF’s application to regulators for approval of the sale as a rationale for the downgrade review.
“While IIF’s application to (El Paso Electric’s) regulators for transaction approval includes a number of ring-fencing provisions and other commitments, there is little detail available on the proposed acquisition financing, presenting some uncertainty on the credit implications of the transaction for (El Paso Electric),” the news release states.
George De La Torre, spokesman for El Paso Electric, said the downgrade review does not impact the upcoming sale.
“We continue to expect the transaction to close in the first half of 2020,” De La Torre stated in an email.
In the news release, Nana Hamilton, assistant vice president for Moody’s, said the decline in El Paso Electric’s credit metrics include a ratio of cash flow from operations before working capital charges to debt. Right now, it’s around 16% – lower than the historical level of 18%.
“This level is weak for the company’s Baa1 rating and more in line with slightly lower rated vertically integrated peers,” Hamilton said in the news release.
Moody’s review will focus on El Paso Electric’s financing plans for capital expenditures, regulatory strategies to recover those costs and whether cash flow coverage ratios would return to historical levels.
Moody’s will also look at acquisition financing plans, regulatory and stakeholder responses to the acquisition and potential credit implications.