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Analyzing NextEra Energy’s Debt Profile

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Debt profile

NextEra Energy (NEE) had total debt of $29.7 billion as of December 31, 2015. Of this total debt, $26.7 billion is long-term borrowing, and $3 billion is short-term borrowing. It has a debt-to-equity ratio of 1.3x and a debt-to-market capitalization ratio of 0.6x.

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Leverage

Utilities (XLU) generally carry heavy debts on their books, as they are involved in asset-heavy business. A 25-basis-point interest rate hike from the Fed in December 2015 may not have a substantial impact on utilities’ interest expenses, but a series of rate hikes this year may hamper their profitabilities.

Considering its debt levels as of December 31, 2015, NextEra’s net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio stands at 3.7x. Duke Energy (DUK) and Southern Company’s (SO) net debt-to-EBITDA ratios are each at 3.9x.

The net debt-to-EBITDA ratio shows how many years it would take for a company to repay its debt using EBITDA if debt and EBITDA were to be held constant.

The debt-to-asset ratio represents the proportion of a company’s assets that are financed by debt. It assesses the financial risk of a company. NextEra Energy has a debt-to-asset ratio of 0.3x, which is equal to Duke Energy’s ratio. Southern Company also has a debt-to-asset ratio of 0.3x.

Credit rating

Standard & Poor’s has given a “stable” outlook to NextEra Energy with a credit rating of “A-.” By comparison, Exelon (EXC) has a credit rating of “BBB.” NextEra Energy is in good shape to raise funds from capital markets if required, considering its investment-grade credit ratings from rating agencies.

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