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CenterPoint Energy Resources Corp. -- Moody's changes outlook of CenterPoint Energy Resources Corp. to negative

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Rating Action: Moody's changes outlook of CenterPoint Energy Resources Corp. to negativeGlobal Credit Research - 25 Feb 2021Approximately $3 billion debt affectedNew York, February 25, 2021 -- Moody's Investors Service, ("Moody's") changed the outlook of CenterPoint Energy Resources Corp. (CERC) to negative from stable. At the same time, Moody's affirmed all ratings of CERC, including its A3 senior unsecured rating and Prime-2 short-term commercial paper rating. The unprecedented weather across Texas and other parts of CERC's service territory resulted in significant increase in the natural gas price and CERC's purchased gas cost.RATINGS RATIONALE"We see higher uncertainty around the recovery period of CERC's higher fuel commodity costs, putting pressure on the company's financial profile," stated Jairo Chung, Moody's analyst. The extreme winter weather resulted in CERC incurring approximately $2.5 billion of gas purchase costs, more than doubling its 2020 cost amount. We expect CERC to increase its regulatory assets to recover the costs over time, and we see additional debt that will result in CERC's cash flow from operation before changes in working capital (CFO pre-WC) to debt to fall below 19%.We expect CERC to engage with its regulators to address the high purchased gas costs it incurred and we continue to view the regulatory environments for CERC to remain constructive. For now, we think regulators will weigh the impact on the customers' bill against the company's ability to manage the cost recovery over a medium to long-term period.Physical climate risks, customer relations, and financial strategy and risk management are three key elements of Moody's assessment of how environmental, social and governance factors respectively affect creditworthiness. The approved recovery timeline for the substantial amounts CERC spent to serve its customers, at a time when customers are under economic pressure caused by the coronavirus pandemic, will be important to the company's credit profile going forward. Furthermore, changes to CERC's corporate finance policies to reduce the financial impacts of the weather-driven natural gas market disruption, and changes to the company's gas supply strategy to mitigate risks associated with extreme weather events will influence our view of CERC's credit.Rating OutlookThe negative outlook reflects the increased regulatory uncertainty related to the recovery period for the increased purchased gas cost. If the timeframe of the cost recovery is several years, we expect CERC's credit metrics to be pressured to fall below 19% on a sustained basis.LiquidityCERC maintains a $900 million commercial paper program, backstopped by a $900 million credit facility that matures in February 2024. As of 19 February, CERC had issued $265 million of commercial paper and had $635 million available. Also, its parent CenterPoint Energy, Inc. (CenterPoint, Baa2 stable) maintains a $2.4 billion revolving credit facility and had $900 million available. CenterPoint Energy Inc., the parent company of CERC, announced today that CERC has received financing commitments for $1.7 billion to bridge its short-term working capital needs.In 2020, CERC generated $729 million of reported cash flow from operations; spent approximately $815 million in capital investment; and distributed $366 million of dividends, including $286 million related to the sale of CenterPoint Energy Services Inc. (CES), resulting in $452 million of negative free cash flow.CERC's next long-term maturity is $300 million due in 2023.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSFactors That Could Lead to an UpgradeA rating upgrade could be considered if CERC's financial profile improves such that its CFO pre-WC to debt is above 21% on a sustained basis or if there is meaningful improvement in the regulatory environment within the states where it operates, resulting in lower risks or higher returns.Factors That Could Lead to a DowngradeA rating downgrade could be considered if there material degradation in the regulatory environment, resulting in higher risks or longer regulatory lag in cost recovery. Also, if CERC's financial profile deteriorates including its CFO pre-WC to debt ratio below 18% on a sustained basis, a downgrade could be possible.Affirmations:..Issuer: CenterPoint Energy Resources Corp.....Senior Unsecured Bank Credit Facility, Affirmed A3....Senior Unsecured Commercial Paper, Affirmed P-2....Senior Unsecured Regular Bond/Debenture, Affirmed A3Outlook Actions:..Issuer: CenterPoint Energy Resources Corp.....Outlook, Changed To Negative From StableCenterPoint Energy Resources Corp. (CERC) is a natural gas local distribution company and a subsidiary of CenterPoint Energy, Inc., headquartered in Houston, Texas. CERC serves approximately 3.5 million customers across six states including Texas, Minnesota, Arkansas, Louisiana, Mississippi and Oklahoma.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.REGULATORY DISCLOSURESFor 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_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.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.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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. Jairo Chung Vice President - Senior Analyst Infrastructure Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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