Deal for AGL comes at time of increasing "risk profile" for Southern, Moody finds

Moody’s affirms Southern ratings, but changes outlook to negative

Now that Southern (NYSE:SO) has announced plans to buy AGL Resources (NYSE:GAS), Moody’s Investors Service has affirmed the Southern rating for commercial paper, but changed its outlook to “negative” on the utility holding company.

Southern announced plans Aug. 24 to buy AGL, a natural gas distributor which owns a stake in three major new pipelines being developed in the Eastern United States.

But the proposed AGL acquisition would come at a time when some Southern utilities are already incurring a growing level of debt for major infrastructure projects.

The AGL acquisition comes at a time when Southern's risk profile has been increasing and its relative position at the Baa1 rating level already weakening as a result of cost increases and schedule delays at the Vogtle new nuclear plant being built by its largest utility subsidiary, Georgia Power, Moody’s said Aug. 24.

“Southern's credit quality has also been pressured by approximately $2 billion of pre-tax ($1.2 billion after-tax) charges taken for unrecoverable costs at the Kemper IGCC plant being built by Mississippi Power,” Moody’s said.

Southern is also providing significant liquidity to Mississippi Power through intercompany loans to the utility. Finally, Southern has been supporting the expansion of wholesale power subsidiary Southern Power into renewable energy through some parent company debt financing, the ratings firm said.

The negative rating outlook on Southern is prompted by today's announcement that it has agreed to acquire AGL Resources, Inc. (AGL, unrated), an Atlanta based natural gas distribution company, for approximately $8 billion in cash" said Moody’s Associate Managing Director Michael G. Haggarty.

"The transaction will result in a significant increase in debt at the Southern holding company level at a time when holding company debt has already been increasing, partly to support funding needs at utility subsidiary Mississippi Power and portfolio growth at wholesale power company Southern Power" added Haggarty.

Moreover, in AGL, Southern is acquiring an entity's whose financing subsidiary, AGL Capital Corp. (guaranteed by AGL), is rated Baa1, lower than three of Southern's four existing utility subsidiaries, Moody’s went on to say.

This article was republished with permission from

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