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S&P Has Negative Outlook for Con Edison with ‘A’ Credit Rating

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Debt profile

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.

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Leverage

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.

Credit rating

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?

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