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Dominion Resources’ Higher Debt Confirms Its Stretched Financials

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Dec. 4 2020, Updated 10:53 a.m. ET

Debt profile

Dominion Resources (D) depends upon both internal and external sources of financing for its capital expenses and dividend payments. As of September 30, 2015, Dominion’s total debt stands at $27.3 billion.

Utilities (XLU) is an asset-heavy industry. Utility operations require significant capital spending because they need to develop infrastructural assets and bear asset maintenance costs. As a result, utilities are profusely dependent upon debt financing. We can see the consistent rise in Dominion Resources’ leverage in the above chart.

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Leverage

Dominion has a debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio of 5.2x. This is called a leverage ratio, and it measures how many years it will take to repay current debt with current operating efficiency. The higher this ratio, the riskier the company.

Dominion is more leveraged than its peers. Leverage for PG&E (PCG) stands at 3.4x, while Exelon’s (EXC) leverage is 2.9x as of September 30, 2015.

Credit rating

Standard and Poor’s (or S&P) has given Dominion Resources a credit rating of “A-” with an outlook of “negative.” S&P is a renowned credit rating agency that assesses and rates companies based on their financials.

S&P has given Exelon has a credit rating of “BBB” and a “stable” outlook. NextEra Energy (NEE) also has rating of “A-“ and a stable outlook from S&P.

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