We have a positive view on NEE CDS spreads, as HoldCo spreads have widened significantly on NEP growth headlines, providing an opportunity to sell protection
- NEE's 5Y USD CDS spread has widened c.20bps since 26 September 2023 and is currently sitting at 3Y wides, providing a favorable tactical entry point.
- We believe renewables-related credit fears are overblown, and point to NEE's regulated utility business (FPL, 70% of EBITDA) underpinning the credit profile. We note NEE reiterated FY23 and FY24 guidance and remains well positioned in terms of its Baa1/A3 ratings.
- NEE's 3Q23 earnings report is a catalyst for re-tightening. We expect management's details around NEP capital allocation, and its limited credit impact to consolidated NEE, to calm investors' nerves after the distribution cut announcement.
- US Utility sector spreads are attractive at current levels and should benefit as rates peak and begin to move lower.