Spectra Energy Capital, LLC, a subsidiary of Spectra Energy Corporation SE, recently received a rating upgrade from Moody's Corporation MCO rating unit, Moody's Investors Service. The credit rating giant changed the affiliate’s rating outlook to stable from negative. Also, the rating agency affirmed the ratings of its senior unsecured rating at Baa2 and its short-term commercial paper rating at Prime-2.
Spectra Energy is one of North America’s premier natural gas infrastructure plays and has strong business positions in growth markets. Headquartered in Houston, TX, Spectra Energy Capital benefits from owning diverse businesses, roughly 80% of which are regulated. About 40% of its assets are in Canada, which include two cost-of-service regulated businesses – a natural gas distribution utility and a natural gas pipeline.
The rating upgrade came on the back of Moody's expectation that the company will finance its large multi-year capital expenditure program with a balanced mix of debt and equity. Spectra Capital's Baa2 senior unsecured rating indicates that Spectra's diverse portfolio of pipeline, utility, and field services businesses are relatively low risk. Most of these assets are pipelines under long-term contracts that earn fixed fees, regardless of volumes handled. Spectra's regulated Canadian businesses charge tariffs that compensate them for the cost of service and an allowed return. Hence, these businesses produce steady and predictable cash flow.
We believe that the rating upgrade is a major positive for this company. This is because it increases the company’s creditworthiness in the market and should boost investor confidence in the stock. Specifically, an improvement in creditworthiness enables a company to enjoy reduced costs on its debts and have better access to capital. This, in turn, improves the company’s financial flexibility and offers means to pursue growth strategies.
Spectra Energy currently carries a Zacks Rank #3 (Hold). Some better-ranked players in the energy sector are Energy Transfer Equity, L.P. ETE, and Boardwalk Pipeline Partners, LP BWP. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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