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S&P affirms stable ratings, outlook for NextEra, HEI, despite merger termination

S&P Global Ratings is affirming its stable outlook andunchanged ratings for NextEraEnergy Inc. and HawaiianElectric Industries Inc. following termination of their merger agreement.

NextEra's decision to end its pursuit of its merger with HEIwas met largely with apathyacross Wall Street, and the decision by S&P to hold bothcompanies' ratings unchanged appears consistent with the neutral view on thedeal falling through for the two firms.

NextEra was affirmed at stable with its A- rating unchanged,while HEI and its subsidiaries held on to their BBB- rating, also with a stableoutlook.

"The current business and financial risk profiles ofNextEra readily accommodated the addition of HEI within the current ratings,"S&P Ratings analyst Dimitri Nikas said in a note. "Therefore, theabsence of HEI leaves our assessment of NextEra's business and financial riskprofiles unchanged."

S&P removed HEI from its CreditWatch status, where itwas previously flagged for positive ratings activity following announcement ofthe proposed merger by NextEra in late 2014. "The rating actions reflectthe termination of the company's planned merger with NextEra, which would haveled to higher ratings for HEI," Nikas noted.

S&P highlighted regulatory challenges posed to HEI'sbusiness risk profile in the coming years, noting that resource planning neededto satisfy aggressive state mandates for renewable energy would be key topreserving the current rating, notably without a NextEra parent. Still, theanalyst said HEI benefits from cost-recovery mechanisms authorized by theHawaii Public Utilities Commission, which ensure stable cash flows and leaveoperational efficiency and utilization of cleaner generation to HEI management.

"We expect that HEI will continue to benefit from thedecoupling framework currently in place while striving to effectively work withthe regulator to increase the contribution of renewable energy in its portfoliowithout increasing business risk or compromising its financial integrity,"Nikas said.

S&P Global Ratingsand S&P Global Market Intelligence are owned by S&P Global Inc.