News Column

Fitch: MLP Formation Has Rating Implications for Utility Sponsors

July 31, 2014



NEW YORK--(BUSINESS WIRE)-- The growing popularity of master limited partnerships (MLPs) among utility holding companies (UHC) could have various rating implications for the sponsoring entity, according to a new Fitch Ratings report.

Fitch expects continued MLP growth as UHCs take advantage of high market valuations and investors' desire for yield. MLPs provide greater financial flexibility as UHCs can monetize natural gas oriented assets while retaining control, utilize relatively lower cost of capital that MLPs enjoy and reduce liquidity needs. However, MLPs often create multilayer debt and equity subordination, complicating the corporate structure, incentivize the pursuit of high risk/high reward expansion opportunities, and could increase cash and earnings volatility for the UHC.

Rating implications for a UHC relate to the strength of its link to the MLP. Fitch gauges these linkages based on the degree of the UHC's control of the MLP's operational and financial decisions, the strategic importance of the MLP to the overall corporate strategy of the UHC, the ownership percentage of the GP and LP by the UHC, the relationship between the GP and LP unit holders, and the severity of structural subordination. The linkages could change with the evolution of the MLP. Consequently, Fitch's analytical approach may adjust over time to capture the shifting risk implications.

The full report 'MLP Formation Has Rating Implications for Utility Sponsors' is available at 'www.fitchratings.com.'

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: MLP Formation Has Rating Implications for Utility Sponsors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750640

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Julie Jiang, +1 212-908-0708

Director

Fitch Ratings, Inc.

33 Whitehall

New York, NY 10004

or

Media Relations, New York

Brian Bertsch, +1 212-908-0549

brian.bertsch@fitchratings.com

Source: Fitch Ratings


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Business Wire


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters