Analyzing Southern Company’s Debt Profile
As of September 30, 2015, Southern Company had total debt of $27 billion against equity of $20.6 billion. Of this, $22.3 billion is long-term debt.
![Vineet Kulkarni - Author](https://media.marketrealist.com/brand-img/yqxvyNRKm/200x200/img-20191003-wa0062-vineet-kulkarni-1595895240949.jpg)
Jan. 28 2016, Updated 7:04 p.m. ET
![uploads///](https://media.marketrealist.com/brand-img/ZhVpFDjHd/480x251/uploads/2016/01/73.png 480w, https://media.marketrealist.com/brand-img/ZhVpFDjHd/640x335/uploads/2016/01/73.png 640w, https://media.marketrealist.com/brand-img/ZhVpFDjHd/768x402/uploads/2016/01/73.png 768w, https://media.marketrealist.com/brand-img/ZhVpFDjHd/1024x536/uploads/2016/01/73.png 1024w, https://media.marketrealist.com/brand-img/ZhVpFDjHd/1280x670/uploads/2016/01/73.png 1280w, https://media.marketrealist.com/brand-img/ZhVpFDjHd/1440x753/uploads/2016/01/73.png 1440w, https://media.marketrealist.com/brand-img/ZhVpFDjHd/1600x837/uploads/2016/01/73.png 1600w, https://media.marketrealist.com/brand-img/ZhVpFDjHd/2160x1130/uploads/2016/01/73.png 2160w)
SO’s debt profile
Southern Company (SO) has a ~$13 billion capital spending plan for the next two years. This will be mainly funded by long-term debt financing.
As of September 30, 2015, SO had total debt of $27 billion against equity of $20.6 billion. Of this total debt, $22.3 billion is long-term debt. SO has a debt-to-equity ratio of 1.3x and a debt-to-capitalization ratio of 0.6x.
Leverage
Southern Company has a net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio of 3.9x, which is equal to Duke Energy’s (DUK) 3.9x. Peer NextEra Energy (NEE) has a net debt-to-EBITDA ratio of 3.4x. The net debt-to-EBITDA ratio shows how many years it will take a company to repay its debt using EBITDA if debt and EBITDA remain constant.
Utilities is an asset-rich business and involves heavy amounts of debt. Hence, leverage is an important metric in analyzing utilities. 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.
SO has a debt-to-asset ratio of 0.3x, which is again equal to Duke Energy’s ratio. NextEra Energy (NEE) also has a debt-to-asset ratio of 0.3x.
Credit rating
In August 2015, Standard & Poor’s (or S&P) Financial Services revised its outlook for SO from “stable” to “negative,” with a credit rating of “A-.” This revision took place due to cost overruns at the company’s Vogtle nuclear plant and the additional debt burden of the AGL Resources acquisition.
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 (XLU) average credit rating remained at “BBB+.”