RE:RE:RE:RE:RE:Ouch 🤕 AlwaysLong683 wrote: The FED has raised rates 75 bps each over the last four announcements to a current rate of 3.75 - 4.00%. I expect a 50 bps raise on the 14th which would take it to 4.25% - 4.50% while the BOC rate is now at 4.25% after today's 50 bps raise. Either way, these rates will eventually filter down to companies like AQN, and the more floating US debt they have (or fixed rate debt coming due soon), the more cash they will have to preserve (dividend cut) or generate (asset sales) to comfortably cover these increased expenses while funding existing operations.
The difference though between AQN and other companies is that all the debt that's included in the utilities capital structure is a pass through to customers rates, so only the non-utilities debt really affect their net cash.
That said, there is a lag between the interest rates and the moment they get the increased cash flow from customers rates but it's a one-time thing, it's not an effect that's lasting on earnings.
Also, the rate of return on the rate base for their utilities depends on long term market rates and when those increase, then the rate of return that's put into rates also increases. So, while higher interest rates will increase their costs, it will also have the impact of increasing their revenues from the utilities, and long term it should be neutral to positive.
The biggest problem AQN has is that with the current depressed share price and the market view on debt load, they will have to slow down capex investments, which will lower future net earnings.