CenterPoint Energy 2014 Annual Report Download - page 70

We cannot assure you that the ratings set forth above will remain in effect for any given period of time or that one or more of these ratings
will not be lowered or withdrawn entirely by a rating agency. We note that these credit ratings are included for informational purposes and are
not recommendations to buy, sell or hold our securities and may be revised or withdrawn at any time by the rating agency. Each rating should be
evaluated independently of any other rating. Any future reduction or withdrawal of one or more of our credit ratings could have a material
adverse impact on our ability to obtain short- and long-
term financing, the cost of such financings and the execution of our commercial
strategies.
A decline in credit ratings could increase borrowing costs under our $1.2 billion revolving credit facility, CenterPoint Houston’
s
$300 million revolving credit facility and CERC Corp.’
s $600 million revolving credit facility. If our credit ratings or those of CenterPoint
Houston or CERC Corp. had been downgraded one notch by each of the three principal credit rating agencies from the ratings that existed at
December 31, 2014
, the impact on the borrowing costs under the three revolving credit facilities would have been immaterial. A decline in
credit ratings would also increase the interest rate on long-
term debt to be issued in the capital markets and could negatively impact our ability to
complete capital market transactions and to access the commercial paper market. Additionally, a decline in credit ratings could increase cash
collateral requirements and reduce earnings of our Natural Gas Distribution and Energy Services Business Segments.
CERC Corp. and its subsidiaries purchase natural gas from one of their suppliers under supply agreements that contain an aggregate credit
threshold of $140 million based on CERC Corp.’s S&P senior unsecured long-term debt rating of A-.
Under these agreements, CERC may need
to provide collateral if the aggregate threshold is exceeded or if the S&P senior unsecured long-term debt rating is downgraded below BBB+.
CenterPoint Energy Services, Inc. (CES), a wholly owned subsidiary of CERC Corp. operating in our Energy Services business segment,
provides natural gas sales and services primarily to commercial and industrial customers and electric and gas utilities throughout the central and
eastern United States. In order to economically hedge its exposure to natural gas prices, CES uses derivatives with provisions standard for the
industry, including those pertaining to credit thresholds. Typically, the credit threshold negotiated with each counterparty defines the amount of
unsecured credit that such counterparty will extend to CES. To the extent that the credit exposure that a counterparty has to CES at a particular
time does not exceed that credit threshold, CES is not obligated to provide collateral. Mark-to-
market exposure in excess of the credit threshold
is routinely collateralized by CES. As of December 31, 2014
, the amount posted as collateral aggregated approximately $83 million. Should the
credit ratings of CERC Corp. (as the credit support provider for CES) fall below certain levels, CES would be required to provide additional
collateral up to the amount of its previously unsecured credit limit. We estimate that as of December 31, 2014
, unsecured credit limits extended
to CES by counterparties aggregated $308 million, and $1 million of such amount was utilized.
Pipeline tariffs and contracts typically provide that if the credit ratings of a shipper or the shipper’
s guarantor drop below a threshold level,
which is generally investment grade ratings from both Moody’
s and S&P, cash or other collateral may be demanded from the shipper in an
amount equal to the sum of three months’
charges for pipeline services plus the unrecouped cost of any lateral built for such shipper. If the credit
ratings of CERC Corp. decline below the applicable threshold levels, CERC Corp. might need to provide cash or other collateral of as much as
$160 million as of December 31, 2014 . The amount of collateral will depend on seasonal variations in transportation levels.
In September 1999, we issued Zero-
Premium Exchangeable Subordinated Notes due 2029 (ZENS) having an original principal amount of
$1.0 billion of which $828 million remains outstanding at December 31, 2014 . Each ZENS note was originally exchangeable at the holder’
s
option at any time for an amount of cash equal to 95% of the market value of the reference shares of Time Warner Inc. common stock (TW
Common) attributable to such note. The number and identity of the reference shares attributable to each ZENS note are adjusted for certain
corporate events. On June 6, 2014, Time Warner Inc. spun off its ownership of Time Inc. by distributing one share of Time Inc. common stock
(Time Common) for every eight shares of TW Common held on the May 23, 2014 record date. As of December 31, 2014
, the reference shares
for each ZENS note consisted of 0.5 share of TW Common, 0.125505 share of Time Warner Cable Inc. (TWC) common stock (TWC Common),
0.045455 share of AOL Inc. common stock (AOL Common) and 0.0625 share of Time Common. On February 13, 2014, TWC announced that
it had agreed to merge with Comcast Corporation (Comcast). In the merger, each share of TWC Common would be exchanged for 2.875 shares
of Comcast common stock (Comcast Common). Upon the closing of the merger (assuming
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(1) A Moody’s rating outlook is an opinion regarding the likely direction of an issuer’
s rating over the medium term.
(2) An S&P rating outlook assesses the potential direction of a long-
term credit rating over the intermediate to longer term.
(3) A Fitch rating outlook indicates the direction a rating is likely to move over a one- to two-
year period.