Fitch rates Entergy ‘stable’
by Wally Northway
Published: June 5,2009
NEW ORLEANS — Fitch Ratings affirms Entergy Corporation’s issuer default rating (IDR) at “BBB-.” The rating outlook of Entergy has been revised to “stable” from “evolving,” despite management” continuing plan to spin-off the non-utility nuclear assets into an independent company, Enexus.
Should the spin-off occur, Fitch anticipates that the transaction would be structured to be credit neutral to Entergy and have no impact on the ratings of Entergy’s utility subsidiaries.
Entergy Mississippi Inc. was also assigned an IDR of “BBB-” and a rating outlook of “stable.”
Fitch wrote: “Entergy management has publicly affirmed its intention to complete the Enexus spin-off if New York and Vermont state public service commission and other approvals are received and associated debt can be issued on economic terms. Related rating issues to be resolved include Entergy’s use of the transaction proceeds, the degree of business linkage and on-going financial support to be provided by Entergy to Enexus and the interim and ultimate capital structure of Entergy. Fitch notes that the regulatory review process for the spin-off has been protracted, and receipt of Vermont and New York regulatory approvals is uncertain. Fixed income market conditions have not recently favored the substantial leveraging that Entergy management contemplates in conjunction with the spin-off; however, if market conditions were to improve, the potential increase of leverage prior to full authorization for the divestiture would be a concern.
“The revision in the rating outlook to ‘stable’ reflects Fitch’s consideration of the company’s prospects with and without the spin-off. In Fitch’s view, if the transaction occurs, the company’s ratings are likely to remain at current levels assuming: no significant post-spin financial support from Entergy to Enexus; balanced use of transaction proceeds to manage Entergy’s capital structure relative to the loss of cash flow from the nuclear business; and the slightly more conservative business profile of the remaining businesses.
“Fitch’s credit concerns for Entergy include state regulation that can be restrictive and adversarial, an aggressive management strategy, uncertainties relating to the spin-off plan and related leverage strategy and commodity price exposure at the wholesale power company. Entergy is exposed to nuclear operating license extension risk on its Vermont Yankee and Indian Point power units beginning in 2012, and could realize lower prices on wholesale power contracts when existing power hedges roll-off should weak demand and gas prices result in a continuance of relatively low average prices for power in the Northeast.”
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