Moody’s downgrades Senegal to Caa1 amid rising debt concerns
Investing.com -- Moody’s Ratings has downgraded Otter Tail Power Company (OTP) to Baa1 from A3, while revising the outlook to stable from negative, according to a Friday announcement.
The rating agency cited expectations that OTP’s financial profile will remain under pressure due to elevated capital spending and debt issuance outpacing utility cash flow growth.
"While OTP has historically maintained stronger credit metrics, we now expect its CFO pre-WC to debt ratio to be sustained in the 18%-19% range," said Jillian Cardona, Moody’s Ratings AVP-Analyst.
The Baa1 rating continues to reflect OTP’s fully regulated vertically integrated utility operations across Minnesota, North Dakota and South Dakota. Moody’s noted that these regulatory environments are generally supportive, with mechanisms such as riders and trackers that facilitate timely recovery of costs, though some regulatory lag persists.
OTP’s $1.4 billion capital expenditure plan through 2029, averaging approximately $290 million annually, represents a significant increase from its historical average of around $230 million per year. The plan includes wind repowering projects, new solar projects, MISO transmission upgrades, and investments in system reliability.
To fund these projects, OTP is expected to continue issuing incremental long-term debt, which will maintain its credit metrics at lower levels than historical averages. The company also continues to upstream dividends to its parent company, Otter Tail Corporation (OTC), typically at a payout ratio of 70% of net income.
As of the last twelve months ended June 30, 2025, OTP’s cash flow from operations before changes in working capital to debt was around 17.3%, compared to a three-year historical average of 22% during 2022-2024.
The stable outlook reflects Moody’s expectation that the company’s regulatory environments will remain credit supportive and financial policies will remain consistent, with the CFO pre-WC to debt ratio expected to remain in the 18-19% range during its heightened capital program.
A rating upgrade could be considered if OTP’s regulatory environments become materially more credit supportive or if its CFO pre-WC to debt exceeds 20% on a sustained basis. Conversely, a downgrade could occur if regulatory support weakens or if financial metrics deteriorate with CFO pre-WC to debt remaining below 17% on a sustained basis.
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