...Merger Mania: Over the past five years, more than 25 corporate merger and acquisition (M&A) transactions have been announced or closed in the Utilities, Power & Gas sector. Fitch Ratings expects the consolidation trend to continue as companies look to offset weak demand and declining returns by acquiring additional assets and rate base investment opportunities. Reducing exposure to unregulated businesses is also expected to be a driver for select diversified utilities. The low interest rate environment facilitates the robust merger activity. Rating Drivers: In most cases the transactions are structured to maximize earnings accretion, with credit quality and ratings a secondary consideration. Ultimately, the ratings impact will be driven by a number of factors. The most significant are the financing plan and the respective ratings of the acquirer and the target company. Over the past few years, Fitch has observed an increase in the use of leverage to finance transactions. Qualitative factors,...
