S&P: OGE Energy Inc. And Subsidiary Oklahoma Gas & Electric Co. 'A-' Ratings Affirmed On Acquisition Proposal; Outlook Stable
The ratings affirmation follows OGE's and a third party's joint proposal to acquire all of Centerpoint's (CNP) partnership interests in Enable Midstream Partners. Paramount to the ratings affirmation is OGE's publicly disclosed clarification that although it is proposing to jointly acquire CNP's interest in Enable, on closing of the transaction, OGE's general partnership (GP) ownership in Enable would not increase at all and that the third party would become the owner of the assets held out for sale by CNP. We believe the company is merely facilitating the sale and its exposure to the riskier and lower-rated Enable will not significantly change. As such, we do not expect that OGE's business and the financial risk profiles would change if this proposal goes forward.
"The stable rating outlook on OGE Energy Corp. reflects our expectation that management will not increase its GP ownership in Enable that could result in our reassessing the business and the financial risk profiles," said S&P Global Ratings credit analyst Safina Ali. "We also expect that OGE will maintain credit protection measures in line with the current financial risk profile by funding its capital needs prudently and ensuring adequate cost recovery for its capital projects," she added.
Specifically, our base-case scenario forecast calls for adjusted FFO to total debt of about 26%.
We could lower the ratings if OGE increases its GP ownership in Enable beyond the current levels. Any further increase in non-utility operations could be viewed as increasing OGE's business risk profile and could lead to a negative assessment. Additionally, we could also lower ratings if OGE is unable to sustain consolidated financial measures of FFO to total debt of at least 23%. Such weakening could occur from volatility in cash flows as a result of increasing stake in non-utility operations, insufficient rate relief and non-recovery of environmental expenditures, higher-than-expected reliance on debt, or a decrease in joint-venture distributions.
Given the uncertainty around Enable's ownership issues and potential for variability in the distributions from the joint venture, over the next two years we do not expect an upgrade. However, we could raise the ratings if financial measures strengthened and consistently exceeded our base-case scenario, including adjusted FFO to total debt greater than 35%.