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NextEra Energy Partners (NEP) Prices Notes to Refinance Debt

Zacks Equity Research

NextEra Energy Partners NEP announced the pricing of $700 million of 4.25% unsecured senior notes due 2024. The notes will be offered by its direct subsidiary, NextEra Energy Operating Partners, LP ("NEP OpCo"). The offering of notes is expected to close on Jun 27, 2019.   

NEP OpCo intends to utilize the net proceeds of $691.2 million to pay off the outstanding balance of $450 million under the revolving credit facility. The remaining proceeds will be used to repurchase up to $240 million of the outstanding 5.600% senior secured notes.

Lower-Than-Industry Debt Levels

NextEra Energy Partners’ debt-to-capitalization ratio currently stands at 33.72%, lower than its industry’s average of 36.91%. NextEra Energy Partners is trying to manage the debt level efficiently, which allows it to lower interest burden, thereby pushing margins higher.

Looking Ahead

NextEra Energy Partners aims at expanding existing operations through organic growth and selective acquisitions, which are in sync with the current renewable energy and natural gas pipeline projects in its portfolio. Disciplined investment approach will allow the partnership to expand operations, remain competitive and increase cash distribution of its unitholders over the long term. The partnership’s acquisition of 1,388 MW of solar and wind projects from NextEra Energy Resources will further expand NextEra Energy Partners’ existing portfolio of renewable assets.

The partnership sold the Canadian portfolio of wind and solar assets to enjoy the domestic benefit of lower effective corporate tax rate and longer tax shield than Canada. This decision to move out from Canada and use the proceeds in U.S. operations is expected to be accretive to the company’s long-term growth.

Rate Freeze Can Benefit Energy Space

The Federal Reserve kept the interest rate unchanged in the target range of 2.25-2.5% in the two-day FOMC meeting that concluded on Jun 19. New projections indicate that the Fed might lower rate in 2020.
The unchanged interest rates in a way will benefit the companies operating in the capital-intensive energy sector. The unaltered rates will allow the energy sector operators to source fund for long-term capital projects at a favorable rate compared with what was expected during the end of 2018. At the December 2018, Fed raised interest rates and predicted two more rate hikes in 2019.

Price Movement

Units of NextEra Energy Partners have outperformed its industry in the past 12 months.

Zacks Rank & Key Picks

NextEra Energy Partners currently has a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks from the same sector are Bloom Energy Corporation BE, Evergy Inc. EVRG and FuelCell Energy Inc. FCEL, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for the current year for Bloom Energy has moved up 6.9% in the past 60 days.

The Zacks Consensus Estimate for the current year for Evergy has moved up 0.3% in the past 90 days. Long-term EPS growth of the company is pegged at 6.61%.

The consensus mark for the current year for FuelCell Energy has been upwardly revised by 50.2% in the past 60 days.

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