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Dominion Energy to pursue asset sales, debt financing to boost near-term credit

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Essential Energy Insights - January 2021


Dominion Energy to pursue asset sales, debt financing to boost near-term credit

Dominion Energy Inc. announced March 27 that it will pursue debt financing of its Cove Point liquefied natural gas facility and the sale of noncore assets, which could include its interest in Blue Racer Midstream LLC, in order to reduce parent-level debt and boost the company's near-term credit profile.

Dominion Energy holds a 50% stake in the $1.5 billion Blue Racer joint venture, which operates a pipeline network focused on the Utica natural gas basin.

Based off these initiatives, Dominion Energy reaffirmed its operating earnings guidance of 95 cents to $1.15 per share for the first quarter of 2018 and full-year 2018 operating EPS in the range of $3.80 to $4.25. The company also reaffirmed its 6% to 8% compound earnings growth rate through 2020.

Dominion Energy said it continues to expect its operating EPS to grow more than 5% per year beyond 2020 backed by diverse regulated capital growth programs across its three main business units.

Additionally, the company reaffirmed its intent to increase its dividend by 10% per share annually through 2020 subject to approval of the board of directors.

In a separate news release, Dominion Energy announced the public offering of 20 million shares of its common stock at $67.85 per share. The company said it expects to enter into forward sale agreements with Goldman Sachs & Co. LLC and Credit Suisse Securities (USA) LLC or their affiliates, under which Dominion agreed to issue and sell to the forward counterparties 20 million shares of its common stock.

Goldman Sachs, Credit Suisse, Barclays Capital Inc., Citigroup and J.P. Morgan are acting as joint book-running managers of the offering.

Dominion said it expects to grant the underwriters a 30-day option to purchase up to an additional 3 million shares of common stock for a total issuance of approximately $1.56 billion of equity.

The settlement of the forward sale agreements is expected to occur by Dec. 31 with the net proceeds to be used for general corporate purposes, including the reduction of Dominion Energy's short-term and long-term debt and as financial support for the company's regulated capital investments, according to the news release.

Dominion Energy said its capital investment reductions and new equity will help the company achieve its target parent leverage ratio two years ahead of schedule, as well as complete its planned equity issuance for 2018 and 2019.

The company also addressed the impact on Dominion Energy Midstream Partners LP from the Federal Energy Regulatory Commission's decision to no longer allow master limited partnerships to include federal income taxes in their cost-of-service rates.

"The reaction of MLP equity capital markets to the FERC policy revision may have a materially negative impact on the amount and price at which DM can raise public equity. Dominion Energy is presently engaged in a review of options for DM and, in the interim, intends to recommend to the DM Board of Directors that the limited partner distribution per unit be increased for the first quarter of 2018 by 5[%] quarter over quarter, consistent with the 22[%] annual distribution growth we have maintained since the initial public offering of DM," Dominion Energy Chairman, President and CEO Thomas Farrell II said in the news release. "DM will utilize existing excess distributable cash flow coverage to support this increase."