CenterPoint Energy 2010 Annual Report Download - page 80

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on the net cash position. The net funding requirements of the money pool are expected to be met with borrowings
under our revolving credit facility or the sale of our commercial paper.
Impact on Liquidity of a Downgrade in Credit Ratings. The interest on borrowings under our credit facilities is
based on our credit rating. As of February 15, 2011, Moody’s Investors Service, Inc. (Moody’s), Standard & Poor’s
Rating Services (S&P), a division of The McGraw-Hill Companies, and Fitch, Inc. (Fitch) had assigned the
following credit ratings to senior debt of CenterPoint Energy and certain subsidiaries:
Moody’s
S&P
Fitch
Company/Instrument
Rating
Outlook (1)
Rating
Outlook(2)
Rating
Outlook(3)
CenterPoint Energy Senior
Unsecured Debt ...................................
Ba1
Positive
BBB-
Stable
BBB-
Stable
CenterPoint Houston Senior
Secured Debt .......................................
A3
Stable
BBB+
Stable
A-
Stable
CERC Corp. Senior Unsecured
Debt .....................................................
Baa3
Positive
BBB
Stable
BBB
Stable
__________
(1) A Moody’s rating outlook is an opinion regarding the likely direction of a 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 "stable" outlook from Fitch encompasses a one- to two-year horizon as to the likely ratings direction.
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or more of these ratings will not be lowered or withdrawn entirely by a rating agency.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may be revised or withdrawn at any time by the rating agency.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 credit facility, CenterPoint
Houston’s $289 million credit facility and CERC Corp.’s $915 million credit facility. If our credit ratings or those of
CenterPoint Houston or CERC had been downgraded one notch by each of the three principal credit rating agencies
from the ratings that existed at December 31, 2010, the impact on the borrowing costs under our bank 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 markets.
CERC Corp. and its subsidiaries purchase natural gas from one of their suppliers under supply agreements that
contain an aggregate credit threshold of $120 million based on CERC Corp.’s S&P senior unsecured long-term debt
rating of BBB. Under these agreements, CERC may need to provide collateral if the aggregate threshold is
exceeded. Upgrades and downgrades from this BBB rating will increase and decrease the aggregate credit threshold
accordingly.
CenterPoint Energy Services, Inc. (CES), a wholly owned subsidiary of CERC Corp. operating in our
Competitive Natural Gas Sales and Services business segment, provides comprehensive 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, 2010, the amount posted as collateral aggregated
approximately $107 million ($59 million of which is associated with price stabilization activities of our Natural Gas
Distribution business segment). 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