Fitch Ratings has affirmed
The Rating Outlook is Stable.
GLW's rating continues to reflect its low business risk profile as a regulated electric transmission utility operating in a constructive regulatory regime under
FFO leverage is expected to remain elevated as GLW undertakes sizable capital projects but return within the rating thresholds in 2027, the expected in service date of the projects. GLW is an indirect, wholly owned subsidiary of
Key Rating Drivers
Significant Capex Plans: GLW has been awarded two projects by CAISO, core upgrades and
GLW is currently undertaking procurement of land and various permits. The upgrade projects will largely use GLW's existing rights of way. Procurement and engineering are expected to begin post the internal board approvals in February of 2024. Construction for the core upgrades is expected to begin in 3Q25 and in 4Q26 for the
Elevated Credit Metrics: Incremental debt for GLW's sizable capex plans is expected to keep credit metrics pressurized with FFO leverage peaking at 8.2x in 2025. However, placement of these projects into service starting early 2027 is expected to provide meaningful growth in cash flows. As a result, FFO leverage is expected to strengthen to 4.2x in 2027, which is within GLW's current thresholds. Low business and regulatory risks and a strong ultimate parent partially mitigate the risks of higher leverage during the project execution phase, in Fitch's view. That said, Fitch notes that material cost and time overruns in the planned projects or any negative regulatory actions could delay the expected deleveraging at GLW and may result in negative rating actions.
Constructive Regulatory Framework: The regulatory framework for GLW continues to be constructive under the
Beneficial Ownership by the Ultimate Parent, NEE: Fitch continues to view the ownership of GLW by the ultimate parent, NEE, as beneficial. NEE is one of the largest energy companies in the
NEE's strong financial position will help GLW as it seeks to gain scale and focuses on growth in transmission related to renewables, growth and system reliability. Fitch also expects that GLW would receive equity support for its capex plans from NEE, through its subsidiary
Additional Long-Term Growth Opportunities: GLW is expected to continue to pursue growth opportunities with more projects recently provided to CAISO for approval. The projects would support California's greenhouse gas reduction goals tied to renewable development on GLW's system, and also open the
Low Business Risk Profile: GLW's ratings reflect the company's low business risk profile as a regulated electric transmission utility with no material volumetric, commodity or customer concentration risks. The company operates exclusively within CAISO and is regulated by
Parent and Subsidiary Linkage: GLW remains an indirect, wholly owned subsidiary of NEE, However, in 2022, the NextEra group raised
Fitch determines NETH's Standalone Credit Profile (SCP) based upon consolidated metrics. Fitch considers GLW to have a stronger SCP than NETH. As such, Fitch has followed the stronger subsidiary/weaker parent path. Emphasis is placed on GLW's status as a
NETH (via NEE) is the sole source of equity; however, GLW issues its own debt. Due to the aforementioned linkage considerations, the ratings of GLW could be constrained by a deterioration in the credit quality of NETH, although this is not a constraint now.
Derivation Summary
GLW's IDR reflects its low business risk profile as a regulated electric transmission utility with no exposure to commodity prices or volumetric risk, and also considers ownership by a strong ultimate parent, NEE (A-/Stable). In Fitch's coverage universe, GLW's closest peers are
Fitch estimates FFO leverage will remain 4.0x or below at MAIT through 2025, while AEPT's leverage is projected to remain well below its 4.8x downgrade threshold through the same period. Smaller than its peers, GLW's significant capex plans are expected to pressurize its credit metrics in the near term as compared with those of AEPT and MAIT. FFO leverage is projected to peak at 8.2x in 2025 albeit improving to 4.2x in 2027, in line with its peers.
Notably, AEPT's rating is constrained by the IDR of its parent
Key Assumptions
A constructive regulatory environment at the
Continued ROE of 10.6% for rate-making;
Distributions and/or member contributions managed to maintain regulatory capital structure at 60% equity;
Capex in line with management estimates over 2024-2027, funded in line with the authorized capital structure with an equity commitment from NEECH for the 60% equity layer;
The
Continuance of existing authorized ROE and capital structure for the new projects;
Interest rates remain elevated in 2024.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A positive rating action is unlikely in the near term given the elevated leverage expected during the project execution phase.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Any major time or cost overrun at GLW's projects such that FFO leverage does not return to below 4.8x in 2027 and beyond;
A meaningful deterioration in the regulatory environment at the
Deterioration of the credit quality of NETH.
Liquidity and Debt Structure
Fitch views GLW's liquidity position as sufficient. The company's liquidity is backstopped by a
GLW has already secured a
Financial covenants for GLW include a maximum debt to total capitalization covenant of 65% and minimum interest coverage of 2.5x and Fitch expects continued compliance with the aforementioned.
Issuer Profile
Sources of Information
The principal sources of information used in the analysis are described in the Applicable Criteria.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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