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FirstEnergy Corp. (FE), whose utilities serve 6 million customers in the U.S. Midwest and Northeast, fell to its lowest in four months after a UBS Securities LLC report said it needs to sell about $500 million in assets next year to preserve its credit rating.
FirstEnergy, based in Akron, Ohio, declined 1.2 percent to $40.72 at the close in New York, the lowest since Aug. 10, according to data compiled by Bloomberg.
The power company faces negative cash flows of about $1.1 billion from 2013 to 2015 as it pays off $1.4 billion in debt at its retail power marketing business and about $400 million held by a transmission unit, Julien Dumoulin-Smith, a New York-based UBS analyst, said in a report today.
“We believe the company continues to contemplate asset sales to meet its equity needs, which are likely around $500 million, to maintain its corporate credit rating,” Dumoulin- Smith said.
FirstEnergy has asked West Virginia regulators to allow it to shift ownership of a merchant coal plant to a regulated utility, adding about $1.1 billion to the rate base that determines the utility’s earnings.
FirstEnergy will need to sell other assets such as hydroplants or a coal mine to maintain its BBB- rating from Standard & Poor’s, said Dumoulin-Smith. He lowered the company’s target price by $2 a share to $43 a share on the prospect of the sales.
He also warned it may be snared in a probe that Ohio regulators announced yesterday of the state’s retail electric market.
“We see this development as a negative as it increases the risk of political interference in the market and seems to specifically target FirstEnergy,” Dumoulin-Smith said.
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