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Duke Energy Under Credit Rating Upgrade Review, Dividend and Safety in Focus

Jon C. Ogg

Duke Energy Corp. (DUK) may soon recapture some of its credit profile that had eroded for more than the past year, since its Progress merger. Moody's Investors Service has now placed Duke's corporate credit rating and its utility subsidiaries on review for a possible credit rating upgrade. Duke reportedly has resolved several key uncertainties that had been present over the past year that have lowered its risk profile. Duke's senior unsecured credit rating is only two notches into investment grade at Baa2. This matters because Duke's dividend yield for its common stock is about 4.4%.

The report stated:

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These positive developments include commercial operation of the Edwardsport Integrated Gasification Combined Cycle (IGCC) plant in Indiana; rate settlements at both of its North Carolina utilities; a regulatory agreement in North Carolina on outstanding issues associated with the management changes made following its merger with Progress Energy; and the clarification of succession plans with the appointment of the company's Chief Financial Officer to be its CEO.

The reason this matters is because it shows quite a bit of insight into the most recent rise in the price of Duke shares at a time when utilities have been under scrutiny due to rising interest rates. Duke shares were performing horribly, even for when the sector was selling off. Its stock was down under $65 in mid-June when the markets were in panic mode, but the stock is now back up to almost $71, against a 52-week range of $59.63 to $75.46. Not all utilities were down almost 15% from their fresh highs, but now Duke shares have recaptured half of the losses.

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Below are the ratings in the report that are being reviewed for a possible credit rating upgrade:

  • Duke Energy Corp. (Duke Energy, Baa2 senior unsecured) and utility subsidiaries Duke Energy Carolinas LLC (A3 senior unsecured)
  • Duke Energy Progress Inc. (A3 issuer rating)
  • Duke Energy Indiana Inc. (Baa1 senior unsecured)

The ratings of Duke Energy Florida Inc. (Baa1 senior unsecured, stable outlook), Duke Energy Ohio Inc. (Baa1 senior unsecured, stable outlook), Duke Energy Kentucky Inc. (Baa1 senior unsecured, stable outlook) and intermediate holding company Progress Energy Inc. (Progress, Baa2 senior unsecured, stable outlook) are not on review and are affirmed with a stable outlook. Duke's Prime-2 short-term rating for commercial paper is also not on review and is affirmed.

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