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Investing.com -- S&P Global Ratings has upgraded Southwest Gas Holdings Inc. and Southwest Gas Corp . to ’BBB+’ from ’BBB’ following the company’s complete exit from its Centuri business.
The rating agency cited Southwest Gas’s transformation into a fully regulated utility operation as the key factor behind the upgrade. The company recently completed secondary public offerings for its remaining stake in Centuri, generating combined proceeds of $1.4 billion.
Prior to the sale, regulated utility operations represented only about 25% of Southwest Gas’s EBITDA in 2024. Now, 100% of the company’s EBITDA comes from lower-risk utility operations, significantly improving its business risk profile.
S&P highlighted Southwest Gas’s operational scale and regulatory diversity as additional strengths. The company operates in jurisdictions regulated by the Arizona Corp. Commission (approximately 55% of rate base), Public Utilities Commission of Nevada (35%), and California Public Utilities Commission (7%). The remainder consists of FERC-regulated pipeline transmission systems.
The rating agency expects Southwest Gas to maintain funds from operations (FFO) to debt of 17%-18% through 2027, providing an "ample financial cushion" above downgrade thresholds. This improvement follows the company’s repayment of $550 million of its term loan facility and outstanding credit facility amounts using proceeds from the Centuri sale.
S&P’s assessment incorporates recent regulatory developments, including an $80.2 million rate increase authorized by the Arizona Corp. Commission, effective March 2025. The company has also filed for a revenue increase of approximately $44 million in California, with a decision expected by January 2026.
The stable outlook reflects S&P’s expectation that Southwest Gas will maintain effective regulatory management while sustaining consolidated FFO to debt of 17%-18% through 2027.
S&P noted that potential growth projects, such as the Great Basin expansion with estimated capital costs of $1.2 billion-$1.6 billion, could weaken financial measures. Under such a scenario, FFO to debt could decline to 14%-15%.
The rating agency indicated it could lower ratings if FFO to debt consistently falls below 13% or if business risk materially increases. Conversely, ratings could be raised if FFO to debt approaches 20% without any increase to business risk.
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