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How Southern Company Plans to Address Its Debt

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Southern Company’s debt profile

Southern Company’s (SO) debt has significantly increased in the last few years, particularly after its AGL Resources acquisition. On March 31, it had net debt of around $50.0 billion, compared with $27.0 billion in 2015. Southern Company’s planned asset sale might improve its debt profile to some extent in future quarters.

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Leverage

Southern Company’s net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio, which shows how many years it will take for it to repay its debt using its EBITDA if its debt and EBITDA are held constant, was 5.2x at the end of Q1 2018. NextEra Energy’s (NEE) net debt-to-EBITDA ratio is 4.5x, lower than Southern Company’s.

A debt-to-equity ratio compares how much debt and equity are used for financing a company’s assets. A higher ratio suggests higher debt-servicing costs. On March 31, Southern Company’s debt-to-equity ratio was 2.0x, while NextEra Energy’s ratio was below 1.0x. To learn about utilities’ (XLU) latest performance and where they might go from here, read Weekly Review: Utilities Stumbled Last Week.

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