Fitch Views NEP Formation as Neutral to Nextera's Ratings

  Fitch Views NEP Formation as Neutral to Nextera's Ratings  Business Wire  NEW YORK -- May 28, 2014  Nextera Energy Inc.'s (NEE) decision to form a growth oriented limited partnership, Nextera Energy Partners, LP (NEP), has no impact on NEE's ratings in the near term, according to Fitch Ratings. Fitch currently rates NEE 'A-' with a Stable Rating Outlook.  NEE's decision to pursue a publicly listed, yield driven and growth oriented vehicle is not unexpected given considerable investor interest following the successful performance of NRG Yield (not rated). Besides providing an obvious cost of capital advantage to NEE, the formation of NEP provides the company with an alternate source of capital to recycle its investments in Nextera Energy Resources (Energy Resources). Energy Resources is NEE's indirect, wholly owned subsidiary that owns predominantly contracted, non-regulated power generation assets. In Fitch's view, the formation of NEP also provides greater visibility to investors in monitoring the residual cash distributions generated by a portion of the Energy Resources portfolio that help service holding company debt.  The formation of NEP also raises several credit concerns with the primary one relating to the potential conflict of interest that may arise between NEE's investors and NEP's unitholders and how will management handle it. During the first three years, NEP is targeting a 12% - 15% growth rate in cash available for distributions, which will require a steady pace of sell-downs from Energy Resources' portfolio that raises questions regarding the valuation of those assets and the quality of assets left behind at Energy Resources. A conflict committee composed of three independent directors (currently two are nominated) will help partially mitigate this concern.  Another concern relates to any potential changes to NEE's growth strategy. NEE's current portfolio of long-term contracted assets combined with its development pipeline of new wind and solar projects creates a transparent pipeline of additional sell downs to NEP without the need to chase acquisitions. As NEP gets larger, managing a high growth in cash distributions will get harder and potentially require a more aggressive and/or acquisitive management stance in expanding the asset portfolio. Furthermore, NEE will receive an Incentive Distribution Fee if NEP is able to achieve certain targeted quarterly distribution to its unit holders (these levels will be determined as part of the IPO), which creates further incentive for management to pursue higher growth to hit those targets. There is expected to be no debt at NEP initially except for a $250 million revolving credit facility. Future debt issuances at NEP would result in further subordination of cash flows to NEE.  At present, Fitch views the formation of NEP as neutral to NEE's credit. The small size of NEP and contemplated pace of sell downs does not alter the business mix of Energy Resources or NEE in any meaningful way. Fitch expects NEE to use a portion of the sale proceeds for holding company debt reduction. In its public comments, management has reinforced its commitment to credit ratings, and Fitch expects NEE to meet the targeted credit metrics on a pro forma basis. As NEP grows larger and if NEE's ownership is progressively reduced, Fitch could take a more conservative view of evaluating the cash distributions from NEP relative to other sources of funds to service holding company debt. Fitch will continue to monitor management's strategy and an aggressive acquisition or financial strategy, rising conflict of interest between NEE and NEP, or predominantly shareholder focused use of sell down proceeds will have negative implications for NEE's credit.  NEP will initially own a portfolio of 10 wind and solar assets with a generating capacity of 990 MW. One of the projects is still under construction (59.9 MW) while the rest achieved commercial operation between 2009 - 1Q2014. All of the projects have long-term contracts with creditworthy counterparty with an average contract life of 21 years. NEE intends to sell-down a portion of its ownership in NEP to public through an IPO and will own a general partner interest in NEP through an affiliate. NEE has committed to provide a right of first offer (ROFO) to NEP over a six-year period for additional 1,549 MW of wind and solar assets. These assets are also either in development or newly constructed and have long-term contracts.  Additional information is available at 'www.fitchratings.com'.  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.  Contact:  Fitch Ratings Primary Analyst Shalini Mahajan, CFA, +1-212-908-0351 Senior Director Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 or Secondary Analyst Glen Grabelsky, +1-212-908-0577 Managing Director or Media Relations Brian Bertsch, New York, +1-212-908-0549 brian.bertsch@fitchratings.com  
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