How will the pricing of the fixed-to-fixed rate subordinated notes affect Fortis Inc.'s credit rating and borrowing costs?

The pricing of Fortis Inc.’s new fixed‑to‑fixed rate subordinated notes will act as a market barometer for the company’s credit profile and will immediately influence its cost of capital. If the notes were priced tightly—i.e., with a spread only modestly above the senior unsecured debt (typically 150‑200 bps for a utility of Fortis’s size)—it signals strong investor confidence in the firm’s cash‑flow stability and Tier‑2 capital adequacy. In that scenario rating agencies are likely to leave the current “AA‑” rating unchanged, and the effective borrowing cost on the new tranche will be low, keeping overall weighted‑average cost of capital (WACC) compressed. Conversely, a pricing discount that translates into a wide spread (≥250‑300 bps over senior debt) would suggest that the market perceives higher risk in the subordinated layer—either due to elevated leverage, weaker cash‑flow coverage, or macro‑fuel‑price stress. Rating committees could then place the company on a watch‑list or downgrade it, and the higher coupon on the notes would raise Fortis’s incremental borrowing costs, feeding through to a higher WACC.

From a trading standpoint, monitor the issue‑price spread relative to peer utilities (e.g., Canadian Power Corp, Emera) and to Fortis’s own senior debt curve. A narrow spread presents a buying opportunity on the notes or on Fortis equity, as the company can lock in cheap capital and may even improve its leverage ratio. A widening spread, especially if accompanied by a discount to par, could be a warning flag: consider shorting the notes, hedging exposure, or reducing long positions in Fortis equity until the spread normalises or the rating outlook clarifies. Keep an eye on any accompanying credit‑rating commentary from S&P, Moody’s or Fitch in the days following pricing, as that will confirm whether the market’s pricing signal translates into a formal rating action.