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The analysts explained that “NEE’s decision to not proceed with an asset drop down and cut NEP’s growth goal created a crisis in confidence in NEP that will be difficult to restore.”
NextEra Energy Partners (NEP) is a limited partnership formed by Nextera Energy Inc (NYSE:NEE).
“On 9/27, NEE surprised investors with a decision to not proceed with a planned asset drop down to NEP due to unfavorable economics,” the analysts explained.
“As a structure that pays out nearly 100% of CAFD, the success of NEP is tied to the ability to raise equity and debt capital on favorable terms. As such, investor confidence really matters.”
They continued: “Despite NEE’s attempts to prop NEP up, the prolonged slump in NEP’s units (driven by high rates and CEPF buyout concerns) resulted in an unattractive cost of capital relative to NEE’s other financing options.”
Given the myriad of questions and uncertainties, Wells Fargo believes it is prudent to move to the sidelines on NEP.
