Consolidated Edison (ED) is looking to strengthen its regulated business by investing $7 billion in the next two years. This funding will mainly be done by long-term debt financing. As of September 30, 2015, Con Edison has a total debt of $13.4 billion against equity of $13 billion. In this total debt, $11.5 billion is long-term debt. It has a debt-to-equity ratio of 1.03x and a debt-to-capitalization ratio of 0.7x.
Fitch expects Con Edison’s credit metrics to weaken due to its elevated capital expenditures and a base rate freeze until 2016. The higher capital spending can become an additional burden on the current debt, while the flattened revenues due to a base rate freeze may hamper cash flows.
Utilities (IDU) is an asset rich business and involves heavy amounts of debt. So leverage is an important metric to analyze utilities. Con Edison has a debt-to-asset ratio of 0.3x, which is lower than FirstEnergy’s 0.4x. Leading utility company NextEra Energy (NEE) has a debt-to-asset ratio of 0.36x. The ratio represents the proportion of a company’s assets that are being financed by debt. It assesses the financial risk of a company.
Con Edison has a net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio of 3.9x, which is much lower than FirstEnergy’s (FE) 6.3x. NextEra Energy has a net debt-to-EBITDA ratio of 3.4x. A lower ratio means the company generates higher EBITDA per unit of its debt.
S&P (Standard & Poor’s) Financial Services has given a “negative” outlook to Consolidated Edison with a credit rating of “A-.” S&P is a renowned credit rating agency that assesses and rates companies based on their financials. By comparison, S&P has given Exelon (EXC) a credit rating of “BBB” and a “stable” outlook. At the end of fiscal 3Q15, the utility sector’s average credit rating remained “BBB+.” To know more about credit ratings, read Credit ratings: Another bubble in the making?