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Analyzing Southern Company’s Debt Profile and Spending Plan

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Capital expenditure

Southern Company’s (SO) expansion plans for its regulated operations are supported by a solid capital spending plan. The company is planning to spend approximately $13 billion in the next two years as part of its expansion strategy. It should be noted that this does not include ~$8 billion in anticipated debt financing for its AGL Resources acquisition.

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Debt profile

The planned capital expenditures will mainly be funded by long-term debt financing. As of September 30, 2015, Southern Company had a total debt of $27 billion, against equity of $20.6 billion. Of this total debt, $22.3 billion is long-term debt.

In August 2015, Standard & Poor’s revised its outlook for Southern Company from “stable” to “negative,” with an “A-” credit rating. This revision took place due to cost overruns at the company’s Vogtle nuclear plant and the additional debt burden of the AGL Resources (GAS) acquisition. In comparison, Exelon (EXC) has a credit rating of “BBB” and NextEra Energy (NEE) has an “A-“rating. Southern Company is in good shape to raise funds from capital markets if required, considering its investment grade credit rating from rating agencies.

Capacity addition

Southern Company is actively focusing on capacity addition. It has allocated a major portion of its spending towards ongoing construction of the Kemper and Vogtle nuclear plants. After becoming operational, both of these plants will increase Southern Company’s capacity significantly. Apart from these two plants, the company added numerous renewable energy assets in 2015. It is aiming to increase its renewable generation capacity to 2,600 megawatts. It spent more than $2 billion on renewables (PBW) development and plans to spend $1.3 billion more in 2016.

Southern Company’s capital expenditure plan, with its focus on strengthening its generation facilities, could be a key factor in its growth in the next few years. Also, diversifying into renewable generation assets could also make the company’s generation mix cleaner in the near future.

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