S&P Global Ratings on Nov. 2 upgraded AES Corp.'s issuer credit rating to BBB- from BB+, and the issue-level ratings on the company's senior unsecured debt, with a stable outlook.
In a related move, the rating agency on Nov. 3 upgraded the issuer credit ratings of DPL Inc., which is owned by AES, and its principal subsidiary, Dayton Power and Light Co., or DP&L, by one notch to BB+. The outlooks of both DPL and DP&L remain developing, to reflect the potential for another upgrade in the coming months.
AES' rating reflects its "satisfactory" business risk and "significant" financial risk profile. The company has de-risked its business portfolio by focusing on rate-based utilities and long-term contracted businesses while also narrowing its service territories to 13 countries, from 29. The stable outlook reflects an expectation by S&P Global Ratings that adjusted funds from operations to recourse debt will improve to about 22% for AES, and adjusted recourse debt-to-EBITDA will move toward 3.75x.
S&P Global Ratings noted AES has a portfolio of utilities and generation businesses with an average contract life of 14 years. Although the company works in diverse regions, the risk of foreign exchange is minimal since about 85% of its operations are located in U.S. dollar-dominated regions. The company also has a lower hydrology exposure due to proactive hedging and asset diversification, in the rating agency's view.
Although AES has exposure to high-risk countries including Argentina, El Salvador, Bulgaria and Vietnam, Ratings noted the company has managed to supplant cash flows from better-performing assets when necessary, which demonstrates the benefits of its diversity.
S&P Global Ratings' upgrade of Ohio subsidiaries DPL and DP&L reflects the upgrade of their parent company. The rating agency expects AES to provide support to DPL under certain circumstances, like its recent move to inject $150 million in equity to DPL and its conditional plan to infuse an additional $150 million of equity in 2021.
The utilities' developing outlooks reflect the potential for another upgrade if stand-alone consolidated financial measures at DPL improve. But S&P Global Ratings said DPL's credit quality could weaken if a recent settlement filed resolving several regulatory matters is materially altered in a final order by Ohio regulators.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.