OREANDA-NEWS. Fitch Ratings has affirmed the Issuer Default Rating (DIR) of Nextera Energy, Inc. (Nextera) and Nextera Energy Capital Holdings, Inc. (Capital Holdings) at 'A-'. The Rating Outlook remains Stable.

The affirmation reflects a modest impact to Nextera's credit profile from the recent acquisition announcement of NET Midstream by Nextera Energy Partners (NEP; not rated). The addition of stable cash flows from long-term contracted pipeline assets and benefits of asset class diversification at NEP are outweighed in Fitch's view by the enhanced equity financing risk and pursuit of third-party acquisitions to grow NEP in a heightened M&A environment.

On Aug. 3, 2015, NEP announced a \\$2.1 billion transaction to acquire NET Midstream, which owns and operates seven natural gas pipelines located in Texas. Fitch views favorably the long-term (16 years on average) ship-or-pay contracts totalling 3 bcf/day at these pipelines with largely investment-grade counterparties. The transaction consists of an initial consideration of \\$1.8 billion and \\$300 million future expansion investment in 2016. The permanent financing mix with a majority proportion of equity (\\$1.2 billion versus \\$900 million of debt) is favorable. The debt will comprise \\$600 million of non-amortizing project debt and \\$300 million of debt at NET Midstream. NEP expects to close the transaction by mid-October.

KEY RATING DRIVERS
Asset Diversification at NEP: Fitch views the addition of long-term contracted pipeline assets as a positive addition to NEP's overall portfolio. Asset diversification has become more relevant in the recent context of weather-induced below-average performance of wind projects. NEP's current portfolio is heavily weighted towards wind. NET Midstream is the first pipeline acquisition for NEP and offers organic growth opportunities. This asset will also fit well with other pipeline investments that Nextera is pursuing, which includes Sabal Trail, Florida Southeast Connection, and Mountain Valley Pipeline. Fitch believes, once operational, these new pipeline investments could be dropped down into NEP.

Equity Financing Risk: Fitch sees significant execution risk with NEP's proposal to finance the NET Midstream acquisition with \\$1.2 billion of equity. The Yieldco equities have come under tremendous pressure in recent weeks and an equity raise before the deal close could be a challenge, in Fitch's view. NEP has secured a \\$1 billion bridge loan facility as a backstop to equity issuance. NEP already has a short-dated term loan of \\$313 million and revolver draws of \\$79 million as of June 30, 2015, a large proportion of which is expected to be replaced with equity financing.

Tilt Toward Third-Party Acquisitions: NEP has been pursuing an aggressive growth strategy and drop downs from Nextera into NEP have occurred at an accelerated pace compared to Fitch's initial expectations. The pursuit of third-party acquisitions to drive growth at NEP, despite a large existing and a healthy development pipeline of assets available with Nextera for future drop downs, is a concern for Fitch. While the NET Midstream acquisition at a cash available for distribution (CAFD) yield of 9.6% is comparable to other recent Yieldco M&A transactions, the EV/EBITDA transaction multiple of 12x (excluding expansion) is toward the upper end of recent pipeline deals.

Risk of Subordination: Management in its second-quarter earnings conference call discussed the possibility of using non-amortizing debt to finance renewable assets, which is a departure from its traditional mode of project financings. Any permanent debt at NEP that replaces existing project debt would be credit negative for Nextera's debtholders. The project debt is largely non-recourse and Fitch believes NEP would walk away from a project if it became distressed.

Significant Dividend Increase: Nextera also announced a material increase in dividend with its second-quarter earnings release and is targeting a dividend payout ratio of 65% by 2018, from 55% currently. Fitch considers dividends paid by utility holding companies as non-discretionary use of cash, thus a material increase in dividend lowers the financial flexibility of the company. However, based on the current pipeline of investment opportunities at Nextera, Fitch expects the company to have sufficient financial headroom to absorb the additional dividend without a material increase in leverage.

Strengthening Credit Metrics: On a fully consolidated basis, Fitch expects Nextera's funds from operations (FFO) fixed-charge coverage to be in the 5.5x-6.0x range over the forecast period of 2015-2018. Fitch expects adjusted debt to EBITDA and FFO adjusted leverage to approximate 3.5x by 2018. There is no material change to these projected metrics after incorporating the NET Midstream acquisition.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for Nextera include:

--Annual retail sales growth of 1.0% at Florida Power & Light (FPL) over 2015-2018;
--Base rate increases at FPL in mid-2016 for Port Everglades. Additional rate increase in 2017 to allow FPL to earn close to its current authorized ROE of 10.5%;
--O&M and other expenses growth at FPL of 1.5% from 2015 to 2018;
--Capex at FPL and Capital Holdings of approximately \\$30 billion over 2015-2018;
--Limited commodity exposure based on existing hedge position;
--Completion of Hawaiian Electric Industries, Inc. acquisition by the end of 2015.

RATING SENSITIVITIES

Positive: Positive rating actions for Nextera and Capital Holdings appear unlikely at this time.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--A failure to achieve adjusted FFO leverage of 3.5x - 3.75x by 2017 on a consolidated basis;

--Any deterioration in credit measures that result from higher use of leverage or outsized return of capital to shareholders. Fitch will continue to monitor management's strategy with respect to NEP, and an aggressive acquisition or financial strategy, rising conflict of interest between Nextera and NEP, or predominantly shareholder focused use of sell down proceeds will have negative implications for Nextera's credit;

--A change in strategy to invest in non-contracted renewable/pipeline/electric transmission assets, more speculative assets, or a lower proportion of cash flow under long-term contracts;

--Any change in current regulatory policies at Florida Public Service Commission and/or any weakness in the current business climate in Florida;

--Changes in tax rules that reduce Nextera's ability to monetize its accumulated production tax credits, investment tax credits, and accumulated tax losses carried forward.

LIQUIDITY
Liquidity is robust with committed corporate credit facilities of the NEE group of companies aggregating approximately \\$9.7 billion, excluding limited recourse or non-recourse project financing arrangements. Debt maturities are manageable. Nextera's ratings reflect the company's strong access to the capital markets, CP market and to banks for both corporate credit and project finance.

FULL LIST OF RATING ACTIONS

Fitch affirms the following ratings with a Stable Outlook:

NextEra Energy, Inc.
--Long-term IDR at 'A-'.

NextEra Energy Capital Holdings, Inc.
--Long-term IDR at 'A-';
--Senior unsecured debentures at 'A-';
--Junior subordinate hybrids at 'BBB';
--Short-term IDR and commercial paper at 'F1'.