Credit-rating agency Standard & Poor’s downgraded Duke Energy on Wednesday, saying the utility’s lack of transparency about its abrupt firing of ex-Progress CEO Bill Johnson may harm its ability to win rate increases in North Carolina and Florida.
“The ratings downgrade on Duke Energy and its subsidiaries stems from our view that abrupt leadership changes at the company have heightened regulatory risk in North Carolina and likely in Florida, significantly weakening the company’s consolidated ‘excellent’ business risk profile under our criteria,” S&P credit analyst Dimitri Nikas said in a statement.
S&P noted that Duke is preparing to file two rate cases in North Carolina and also must address the future of Progress’ troubled Crystal River nuclear reactor in Florida.
S&P lowered Duke’s credit rating from A- to BBB+, and the agency now has a negative outlook on Duke and all of its subsidiaries. Lower credit ratings make it more expensive for companies to borrow money.
The downgrade is the latest fallout from the decision by Duke’s board of directors to oust Johnson just hours after the merger between Raleigh-based Progress and Duke closed. He was replaced by Duke CEO Jim Rogers.
In a statement about the downgrade, Duke Chief Financial Officer Lynn Good said the merger with Progress has given Duke the “scope and scale and the strength to manage through a time of transition in the utility industry. While we disagree with S&P’s rating action and its assessment of the company’s risk profile and governance practices, we remain committed to high credit quality.”
Shareholders file more lawsuits
The ratings downgrade came a day after two more shareholders filed lawsuits against Duke and its board of directors over what they say were “false and misleading” statements about the merger with Progress. The two suits were filed in federal court by plaintiffs seeking unspecified damages and class-action status.
Analysts have been predicting that Duke’s handling of the executive shakeup would ultimately lead to multiple shareholder lawsuits. The first lawsuit was filed last week in Delaware’s Court of Chancery by an Alabama shareholder.
James A. Craig of Cleveland County, Okla., filed suit in the Eastern District Court of North Carolina. Craig alleges that the documents Progress and Duke filed with the Securities and Exchange Commission about their merger were false and misleading because they stated that Johnson was to serve as the president and CEO of the combined company.
“The decrease in the price of Duke stock was a proximate result of the artificial inflation caused by Defendant’s misleading statements and material omissions, and the removal of that inflation upon disclosure of adverse facts relating to Mr. Johnson’s termination,” Craig’s lawsuit states.
Craig bought 53 shares of Duke stock on July 2, according to his lawsuit. Duke’s stock is down about 6 percent since the company announced the executive shakeup before markets opened July 3.
Another shareholder, Maurine Nieman, filed suit Tuesday in the Western District of North Carolina, which includes Duke Energy’s hometown of Charlotte. Nieman was a Progress shareholder who received shares in Duke after the stock split. Her suit also alleges that the registration statement filed with the SEC by Duke and Progress was false and misleading.
Duke has repeatedly said that the shareholder lawsuits have no merit and that the company plans to defend itself vigorously. Company spokesman Tom Williams reiterated those points Wednesday.
In addition to disgruntled shareholders, Duke also is dealing with ongoing investigations being conducted by the N.C. Utilities Commission and the state attorney general’s office.
Rogers, Johnson and four Duke board members have all testified before the Utilities Commission, describing in detail the backroom maneuvers that led to Johnson’s ouster. Duke has until the end of this month to comply with a documents request by the commission and state attorney general.