Investing.com -- Moody’s Ratings has downgraded the credit ratings of Evergy (NASDAQ: EVRG ) Missouri West, Inc. (MO West) affecting approximately $850 million of rated debt securities. The Issuer rating has been lowered to Baa3 from Baa2, the senior secured first mortgage bond rating to Baa1 from A3, and the short-term commercial paper rating to Prime-3 from Prime-2. The outlook for MO West has been revised to stable from negative.
The downgrade reflects MO West’s ongoing weak credit metrics, driven by high capital expenditures, increased debt issuance, and the absence of quick cost recovery mechanisms to enhance cash flow generation. The company’s cash flow from operations before changes in working capital (CFO pre-WC) to debt ratio is expected to stabilize in the 12%-13% range, aligning with Baa3 rated regulated utility peers.
MO West’s financial profile deteriorated in 2021 due to higher fuel and purchased power costs from Winter Storm Uri, combined with increased capital expenditures and slow cash flow growth. In February 2024, MO West securitized the costs related to the storm, enabling the company to instantly recover large deferred fuel balances and associated costs. The CFO pre-WC to debt ratio was around 12% in 2024, not including the impact of securitization debt. This is compared to the company’s three-year average CFO pre-WC to debt ratio of around 20% from 2019 through 2021, excluding the impact of about $260 million related to extraordinary fuel and purchased power costs from the storm. In the next 2-3 years, MO West’s CFO pre-WC to debt ratio is projected to stabilize in the 12%-13% range as the company continues to execute its large capital expenditure plan.
Increased load demand in MO West’s service area, driven by economic development initiatives and projected data center growth, will significantly increase the utility’s capital expenditures over the coming years. MO West plans to invest an average of roughly $950 million annually through 2029, considerably higher than the company’s annual average capital investments of around $425 million during 2022-2024. The investments are expected to be funded by additional debt, internally generated cash flow, and equity contributions from the parent company. MO West has not paid dividends to its parent, Evergy, Inc. (Baa2 stable), in recent years, a policy expected to continue throughout the elevated investment cycle.
MO West operates fully in Missouri, under the Missouri Public Service Commission (MPSC). The passage of the state’s Senate Bill 4 (SB4) in April 2025, which allows forward test years for gas and water utilities’ rate case filings and inclusion of construction work-in-progress (CWIP) in rate base for the construction of new natural gas plants, is viewed as a positive development. However, the state’s electric utilities, including MO West, are expected to continue using historical test years in future rate case proceedings due to the lack of availability of forward test years, leading to substantial regulatory lag during high investment periods.
The stable outlook for MO West reflects the expectation of a consistent regulatory environment and stabilized financial metrics, including a CFO pre-WC to debt ratio in the 12%-13% range. Factors that could lead to an upgrade include improved regulatory support in Missouri resulting in shorter regulatory lag or higher returns, or if MO West’s CFO pre-WC to debt ratio is sustained above 15%. Conversely, a downgrade could occur if there are adverse regulatory or legislative developments in Missouri leading to increased regulatory lag or lower returns, or if MO West’s CFO pre-WC to debt ratio is sustained below 11%.
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