A new report from Moody's Investors Service finds that foreign investments often offer U.S. electric utility shareholders the prospect of higher returns, but hold little immediate upside benefits for bondholders.
The report, Some Investments Riskier Than Others in Wave of Overseas Expansion by U.S. Electric Utilities, finds that for bondholders, such investments detract from alternative uses of free cash flow. The bondholder could apply the invested money to debt service or repayment, or growing retained earnings to offset potential write-offs of stranded investment. The bonds also expose the company and its debtholders to the risk of the target company and to the political and economic risk of the countries in which the companies operate.