S&P Global revises Centuri Holdings outlook to stable

S&P Global Ratings revised Centuri Holdings Inc.'s outlook to stable from developing, affirming its 'B+' issuer credit rating, citing expectations of EBITDA growth and maintained adjusted debt to EBITDA around 4x, driven by increased utility investments in grid resiliency. The proposed $770 million term loan and $450 million revolving credit facility, while largely leverage-neutral, are seen as clarifying the company's capital structure following its separation from Southwest Gas Holdings, which continues to divest its stake. Despite a nearly 20% EBITDA decline in 2024, Centuri's leverage held at 4.3x, with S&P projecting improvement to below 4x by 2027, supported by strong demand for utility infrastructure services.

Analysis

S&P Global Ratings has revised Centuri Holdings' outlook to stable from developing while affirming its 'B+' issuer credit rating, signaling increased confidence in the company's financial trajectory. This positive revision is anchored in the expectation that Centuri will benefit from increased utility investments in grid resiliency, which S&P anticipates will drive EBITDA growth and allow the company to maintain adjusted debt to EBITDA around 4x. Despite a nearly 20% decline in EBITDA in 2024, leverage remained stable at 4.3x, as the company utilized IPO proceeds to pay down approximately $315 million in debt, effectively offsetting the impact of lower cash flows. The proposed refinancing, including a new $770 million term loan, is viewed as a key de-risking event that clarifies the firm's capital structure following its separation from Southwest Gas. Centuri's commercial position appears solid, with 80% of its business derived from master service agreements with investment-grade utilities and a reported backlog of approximately $4.5 billion, which has been augmented by $1.2 billion in new and renewed agreements this year. S&P projects leverage to improve to the low-4x range in 2025 and fall below 4x by 2027, contingent on the company capitalizing on demand from population growth and data centers.

Key Decisions for Investors

• For credit investors, the stable outlook and refinancing remove near-term uncertainty, but the key metric to monitor is the company's ability to maintain leverage below S&P's downgrade trigger of 5x.
• Equity investors should weigh the strong secular tailwinds from utility capital spending and a robust $4.5 billion backlog against the execution risk demonstrated by the 20% EBITDA decline in 2024.
• Be aware of the potential for a continued stock overhang as Southwest Gas Holdings executes its plan to divest its majority stake, which currently stands at approximately 53%.