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S&P changes outlook on Gulf Power following NextEra deal

S&P Global Ratings on May 21 revised its outlook on Gulf Power Co. to stable from negative after parent Southern Co. announced the utility's sale along with other Florida assets to NextEra Energy Inc.

The rating agency expects that Gulf Power will be an integral part of NextEra Energy's long-term strategy upon deal closing. S&P also revised its stand-alone credit profile on Gulf Power to "a" from "a-".

The $6.48 billion transaction, announced May 21, would allow Southern to address a multibillion-dollar equity need and NextEra to grow regulated earnings, their CEOs said the same day. The deal also includes the sale of Southern gas utility Florida City Gas, as well as Southern Power Co.'s 100% interest in the 791-MW Oleander and 65% interest in the 660-MW Stanton gas-fired power plants.

However, S&P continues to negatively view the issuer credit ratings of Southern and all its other subsidiaries, which were affirmed at A-. S&P sees the week financial measures of the companies to persist for the next two years.

"The negative outlook reflects minimal cushion in the company's credit metrics, taking into account both construction and regulatory risk that is likely to persist until the Vogtle units 3 and 4 nuclear power plants are completed on schedule and placed into base rates," S&P said.

Meanwhile, S&P affirmed its ratings on NextEra Energy, including its issuer credit rating at A-. The rating agency also maintained its stable outlook on the ratings to reflect the gradually improving business risk profile.

Fitch Ratings also made no changes on its ratings on Southern and NextEra, following the deal announcement. The long-term issuer default ratings were affirmed at BBB+ for Southern Co. and Southern Power, A- for Gulf Power and A- for NextEra with stable outlooks.

"Fitch views the sale of the Florida assets as credit positive for Southern Company since it accelerates equity funding by avoiding $3 billion in new equity issuance out of an identified need of $7 billion from 2018-2022," the rating agency said in a May 21 research note.

Separately, Fitch said it views the transaction a good strategic fit for NextEra, since it helps the company extend its presence in a favorable regulatory jurisdiction.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here and here.