Nuova obbligazione subordinata
FWP
New York, June 13, 2019 -- Moody's Investors Service ("Moody's") assigned a Baa2 rating to Sempra Energy's (Sempra, Baa1) Junior Subordinated Notes due 2079 ("Notes") offering. The outlook of Sempra is negative.
RATINGS RATIONALE
The Baa2 rating assigned to the Notes is one notch below Sempra's Baa1 senior unsecured rating and reflects the security's relative position in the company's capital structure compared to its senior unsecured debt. The one notch differential between the Notes rating and the senior unsecured rating is consistent with our methodology guidance for notching corporate instrument ratings based on differences in security and priority of claim.
Sempra intends to use the net proceeds from the junior subordinated notes issuance to reduce the outstanding balance of commercial paper and general corporate purposes.
In our view, the Notes have equity-like features which allow them to receive basket "B" treatment (i.e. 25% equity and 75% debt) for the purpose of adjusting financial statements. Please refer to Moody's cross-sector rating methodology "Hybrid Equity Credit" (September 2018) for further details.
Assignments:
..Issuer: Sempra Energy
....Junior Subordinated Regular Bond/Debenture, Assigned Baa2
Sempra's current ratings are strongly predicated on management's commitment to improve consolidated credit metrics over the next twelve to eighteen months. Specifically, Sempra is expected to generate a ratio of cash flow from operations pre-working capital changes (CFO pre-W/C) to debt above 16% by year-end 2020, including proportional consolidation of subsidiary Oncor Electric Delivery Company LLC (Oncor; A2 senior secured stable), by 2020.
The ratings also anticipate that the contribution of Sempra's non-utility operations will not significantly exceed 20% of total cash flow as the company considers a possible expansion of its liquefied natural gas (LNG) operations. Sempra's consideration of an LNG expansion program could trigger a change in the financial ratio thresholds and further increase its exposure to carbon transition risks over a longer-term horizon. For now, Sempra's suite of businesses, including San Diego Gas & Electric Company's (SDG&E; Baa1 negative) exposure to wildfire risk, drives our view that the group's exposure to carbon transition risk is moderate.
The ratings acknowledge Sempra's progress in implementing its capital rotation program with the sale of its US renewables and natural gas storage operations (net proceeds over $2.5 billion), the acquisition of a 50% limited-partnership interest in Sharyland Utilities, LLC along with Oncor's acquisition of a 100% equity interest in InfraREIT, Inc in May 2019. Our expectation of an improvement in consolidated credit metrics factors in the still pending settlement of around $1.8 billion from Sempra's offering of common stock sold pursuant to forward agreements last year, and that Sempra will use the vast majority of the net proceeds generated from the sale of its South American utilities: Luz del Sur S.A.A. and Chilquinta Energia S.A to strengthen the balance sheet. We expect that both transactions will be completed by around the end of this year. It also considers the expected completion of Cameron LNG, LLC (Cameron, A3 senior secured stable) next year, around one year behind the original expected completion date.
The negative outlook reflects the execution risk that remains as Sempra carries out these plans as well as some uncertainties around the group's overall credit profile going forward, including the pending legislative solutions in California to address the wildfire risk exposure that currently tempers the rating of utility subsidiary SDG&E.
The principal methodology used in this rating was Regulated Electric and Gas Utilities published in June 2017. Please see the Rating Methodologies page on
www.moodys.com for a copy of this methodology.
Other factors used in this rating are described in Notching Corporate Instrument Ratings Based on Differences in Security and Priority of Claim published in October 2017.
Sempra Energy (Sempra) is a holding company that owns regulated electric and gas utilities as well as subsidiaries that operate long-term contracted assets. Sempra's core business includes its two California utilities: San Diego Gas & Electric Company (SDG&E, Baa1 issuer rating, negative) and Southern California Gas Company (SoCalGas, A1 senior unsecured negative). It also holds a 80.25% interest in Oncor Electric Delivery Company LLC (Oncor, A2 senior secured stable), a transmission & distribution (T&D) utility in Texas. Sempra does not control Oncor and does not consolidate it according to Generally Accepted Accounting Principles. In August 2018, Sempra reorganized its operations by setting up the Sempra North American Infrastructure Group that comprises of its 66.6% interest in Infraestructura Energetica Nova S.A.B de C.V. (IEnova, Baa1 global scale rating, negative), which builds and operates pipelines and renewable projects in the Government of Mexico (A3 negative), and its 50% ownership-stake in the Cameron LNG, LLC (Cameron, A3 senior secured stable) liquefaction project. Sempra also holds majority stakes in two utilities that operate in Peru and Chile, which management has announced plans to sell by year-end 2019.
