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CenterPoint Energy, Inc. -- Moody's changes CenterPoint Energy outlook to stable, affirms Baa2 rating

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Rating Action: Moody's changes CenterPoint Energy outlook to stable, affirms Baa2 rating

Global Credit Research - 03 Dec 2020

Approximately $3.3 billion of debt securities affected

New York, December 03, 2020 -- Moody's Investors Service, ("Moody's") today affirmed the ratings of CenterPoint Energy, Inc. (CenterPoint), including its Baa2 senior unsecured rating and Prime-2 short-term rating for commercial paper and changed the rating outlook to stable from negative. See the complete list of ratings affirmed below.

Affirmations:

..Issuer: CenterPoint Energy, Inc.

....ST Issuer Rating, Affirmed P-2

....LT Issuer Rating, Affirmed Baa2

....Pref. Stock Preferred Stock, Affirmed Ba1

....Subordinate Conv./Exch. Bond/Debenture, Affirmed Baa3

....Senior Unsecured Bank Credit Facility, Affirmed Baa2

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Outlook Actions:

..Issuer: CenterPoint Energy, Inc.

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

"CenterPoint has executed its non-regulated business divestitures, issued $1.4 billion of equity and repaid parent company debt" said Robert Petrosino, Vice President -- Senior Analyst. "These corporate actions have stabilized credit metrics and improved liquidity," added Petrosino. Although CenterPoint still carries a high level of parent debt of around 28% of consolidated debt, down from 33% as of April 2020, we expect its CFO pre-WC to debt ratio to be above 14% over the next 12 to 18 months, up from 13% in 2019.

CenterPoint has repaid about $1.8 billion of debt over the last 6 months as a result of several credit supportive corporate actions. On 9 April, CenterPoint sold its infrastructure businesses for ~$850 million in cash. This sale improved the company's business risk and had a slightly positive effect on credit metrics. On 7 May, CenterPoint issued $675 million of common equity and $725 million of mandatory convertible preferred stock for a total equity raise of $1.4 billion. The company used the proceeds from the equity issuance to reduce debt. Finally, on 1 June, CenterPoint sold its higher risk energy marketing business with total consideration of ~$365 million, also used for debt reduction.

Completing these corporate actions mitigates the loss of cash flow from Enable Midstream Partners, LP (Baa3, stable), stabilizes credit measures, strengthens the balance sheet and lowers the company's business risk profile. Although there has been a material loss of cash flow from the businesses sold, this cash flow was volatile and consumed a lot of credit capacity. Management's efforts to streamline its operations and focus on its core utility businesses has lowered CenterPoint's business risk and thus our CFO pre-W/C to debt ratio financial metric threshold for a possible downgrade was reduced to below 14% from below 15% previously.

Environmental, social and governance considerations incorporated into our credit analysis for CenterPoint and its subsidiaries are primarily related to carbon regulations and social risks related to demographic and societal trends, as well as customer and regulatory relations. CenterPoint is strongly positioned for carbon transition with a limited amount of older coal-fired generation largely mitigated by its mostly electric and gas transmission and distribution utility businesses. The company's business plans should substantially mitigate their carbon transition exposure. Social risks are primarily related to societal and demographic trends, health and safety as well as customer and regulatory relations. From a governance perspective, financial strategy and risk management are key considerations.

Rating outlook

The stable outlook reflects our expectation that the corporate actions executed will stop the decline in credit measures resulting from the loss of cash flow from its ownership in Enable and its elevated debt levels. The stable outlook also incorporates the company's lower business risk profile and consistent regulatory environment across its major jurisdictions including its ability to earn adequate returns from its regulated operations.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Factors that could lead to an upgrade

An upgrade of CenterPoint is possible if its overall regulatory construct improves resulting in lower risk or higher returns, or there is further balance sheet strengthening or de-risking of its business risk profile. Ratings could also be upgraded if key credit measures improve, including CFO pre-W/C to debt above 17% on a sustained basis and a ratio of parent company debt to consolidated debt below 20%.

Factors that could lead to a downgrade

CenterPoint's rating could be downgraded if its overall regulatory construct deteriorates resulting in additional regulatory lag, increased risk or lower returns. Ratings may also be negatively affected if there is a material allocation of capital to higher risk investments or the execution of its strategic plan weakens credit measures or increases business risk. Moreover, ratings could be downgraded with increased leverage or reduced cash flow, where the ratio of CFO pre-W/C to debt is sustained below 14%.

The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1072530. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology

Profile

CenterPoint Energy, Inc. (CenterPoint), headquartered in Houston, Texas, is a primarily regulated electric and natural gas distribution company with a joint venture interest in a midstream master limited partnership (MLP). CenterPoint operates its predominantly regulated businesses through three wholly owned subsidiaries including CenterPoint Energy Houston Electric, LLC (CEHE, Baa1 stable), CenterPoint Energy Resources Corp. (CERC, A3 stable) and Vectren Utility Holdings, Inc. (VUHI, A3 stable). CEHE is a regulated electric transmission and distribution (T&D) utility serving the greater Houston area. CERC is a natural gas LDC with divisions in six states. VUHI is an intermediate holding company for its three public utilities: Indiana Gas Company, Inc. (IGC not rated), Southern Indiana Gas and Electric Company (SIGECO, A3 stable), and Vectren Energy Delivery of Ohio, Inc. (VEDO not rated).

CenterPoint's intermediate holding company, CenterPoint Energy Midstream, Inc., (CNP Midstream, not rated) holds the company's 53.7% limited partner (LP) economic interest and general partner interest in Enable Midstream Partners, LP. Enable's operations include interstate and intrastate gas pipelines and gathering and processing assets in the Anadarko, Arkoma, ArkLa-Tex and Williston basins.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Robert Petrosino Vice President - Senior Analyst Infrastructure Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Michael G. Haggarty Associate Managing Director Infrastructure Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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