Moody's revised its negative ratings outlooks on Dominion Energy Inc. and SCANA Corp. following a decision by South Carolina regulators to approve the pending $14.7 billion merger between the companies.
The rating agency changed its outlook on Dominion Energy to stable and affirmed its Baa2 senior unsecured and P-2 commercial paper ratings. It also affirmed the ratings of Virginia Electric and Power Co., including its A2 senior unsecured and P-1 commercial paper ratings, with a stable outlook.
"The $5 billion of consolidated debt reduction at Dominion in 2018 will support an improved financial profile, including a sustainable ratio of cash flow to debt of at least 14% going forward," Moody's senior analyst Ryan Wobbrock said in a Dec. 20 report. "Meanwhile, the acquisition of SCANA Corp., combined with a reduction of unregulated business exposure, will increase and diversify Dominion's regulated utility asset base, provide more predictability to future cash flow and lower its business risk profile."
Separately, Moody’s revised the outlooks on SCANA and its South Carolina Electric & Gas Co. subsidiary to positive and affirmed the Ba1 senior unsecured and Baa3 senior unsecured ratings, respectively.
The ratings action "recognize the benefits of ownership by the larger, more diversified Dominion parent company with a stronger balance sheet and greater financial flexibility," Moody's Senior Credit Officer Laura Schumacher said in a report.
The Public Service Commission of South Carolina on Dec. 14 conditionally ruled in favor of the merger, which was announced in January. The commission also ordered a rate reduction of $370 million, or 15%, for South Carolina Electric & Gas, or SCE&G, which is roughly the same level of rate reduction as the temporary rate cut adopted by the state legislature in June related to the abandonment of the V.C. Summer nuclear expansion project.
Although the temporary rate reduction at SCE&G will continue to pressure the company's credit metrics, the "decision does provide certainty around future cash flow, however, and a foundation for a path back to a more normal political and regulatory environment in South Carolina, a credit positive," Schumacher said.
The agency also affirmed the ratings of Public Service Co. of North Carolina Inc., including its A3 senior unsecured rating, with a negative outlook.
Moody's action follows Fitch Ratings' move to upgrade SCANA and subsidiaries SCE&G and Public Service Co. of North Carolina to BBB from BB+, with positive rating outlooks. Separately, S&P Global Ratings placed SCANA and its subsidiaries on CreditWatch with positive implications, based on the anticipated close of the merger deal with Dominion Energy.
Wall Street maintains that the controversial transaction will close by year-end.