Fitch affirms NextEra, might lift Hawaiian Electric

Fitch Ratings said it affirmed the A- long-term issuer default rating for NextEra Energy, Inc. following the Dec. 3 announcement of a definitive agreement to acquire Hawaiian Electric Industries, Inc.

The transaction excludes Hawaiian Electric’s banking subsidiary.

NextEra’s outlook for is stable.

Fitch said it views acquisition as moderately positive for NextEra’s driven by modest increase in earnings from regulated businesses, predominant use of equity to finance the acquisition, and attractive regulated investment opportunities at Hawaiian Electric’s utility.

That said, the agency’s view is somewhat tempered by structural issues with the Hawaii service territory with its excessive reliance on oil for power generation, high retail prices, increasing penetration of residential roof top solar and need for significant capital investment to transition to cleaner fuel sources. This could put pressure on retail prices in the short- to medium-term, the agency said.

Concurrently, Fitch placed the BBB issuer default rating for Hawaiian Electric on rating watch positive. It will likely resolve the watch on the conclusion of the transaction and could upgrade Hawaiian Electric by one notch given its ownership by a higher rated company. In such a scenario, the ratings of Hawaiian Electric will be equalized with that of its wholly owned subsidiary, Hawaiian Electric Co., given the transaction contemplates the spin-off of the bank.

Post-closing, Hawaiian Electric Industries will become a second-tier holding company of NextEra and will remain as the direct parent of Hawaiian Electric Co.

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