Dominion Resources: Cove Point Project Funding and Capital Structure

Dominion Resources: Cove Point Project Funding and Capital Structure
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Dominion Resources: Cove Point Project Funding and Capital Structure
Response 1:
Dominion Resources is one of the top transporters and producers of natural gas and electricity that dominates the United States energy market. It an energy firm that provides a wide range of products and services in four different sectors through hydraulic fracking, including energy network operations, power generation, energy service providers, and energy traders. The company serves approximately six million retail and utility energy customers spanning over 12 states of America, focusing on Pennsylvania, West Virginia, Virginia, and Ohio (Bacon, 2019). Additionally, Dominion Resources boasts a remarkable energy platform with around 26,000 Mega Warts of generating capacity and one of the leading underground natural gas reservoir and storage systems with a capacity of about one trillion feet. The approved regulation rates on the methods and the cost are high enough to repay for operational expenses, the utilities and generate enough return on equity (ROE) to attract a luring return on capital.
The CEO of Dominion Resources in 2007, Thomas F. Farrell II, decided to change the core of the business to capitalize and maximize the firm's cash flows by trading in part of its significant segment of investment into R&P. The CEO then decided that the company would become an overly more regulated business entity. Cove point was formerly a business venture that substantially influenced the company's long-term financial approaches and was highly regarded by Treasurer Scott Hetzer. Scott Hetzer decided to arrange for a consultative meeting with investment bankers to discuss the potential impact on the company (Dominion Energy, 2019). He learned that the liquefied gas plan would cost the company approximately $3.6 billion of capital to construct, which would become the company's largest investment project of all time. Hence, the CEO chose to focus on regulated and regulated-like ventures because the company was looking for investment and business opportunities in regulated and regulated-like markets that could lock in the future to facilitate seamless takeover.
Response 2:
Dominion Resource’s financial policies and strategies were often dependent on its debt market to fund its outstanding debt and new investment ventures. The company’s target credit rate was an A, but it had a credit rating of A-. Additionally, the bankers decided to demote the Dominion’s credit rating from A- to BBB+ if its debt EBITDA fell under 4.5 from the current 4.6. Bankers also downgrade the rate because its FFO to debt ratio drops below 13% from the current 13.6% (Bacon, 2019). The reduction in the company’s rating poses significant risks to the firm because lowering its credit ratings will adversely impact the company's operations in various ways. For instance, it will lead to a subsequent increase in its insert borrowing rate by approximately 0.4%, and BBB+ will also drop the company from its initial target of A by two grades. Additionally, the downgrade will significantly lead to a price decline for the co...