Royal Bank of Canada downgraded its rating on NextEra Energy Partners (NEP.US) to "market perform" from "outperform", with a target price reduced from US$38 to US$30. The company's stock fell 8.79% on Monday. The bank predicted that there will be insufficient growth in wind power generation, resulting in approximately US$3.7 billion of convertible equity and debt securities, which will become due after 2026. Therefore, the company may face significant challenges in future development.

In addition, Barclays recently downgraded NextEra Partners to "sell" and suggested that the company's dividends may be lowered.

Considering the challenges in the company's cash available for distribution (CAFD) growth prospects, Shelby Tucker, an analyst at Royal Bank of Canada, believes that NextEra Partners will not be able to sustain long-term dividends or unit growth of 5%-8%. The joint company will ultimately cut dividends, prompting the analyst to add speculative risk considerations to its rating.

Tucker believes that cutting dividends by about 50% will reset the payout ratio to below 60%, which will help offset the convertible equity and debt securities and provide a dividend cushion in the later stage of the convertible equity and debt financing period. In addition, this measure will allow NextEra Energy to use NextEra Partners for financing again, even though the stock price will be lower.

The management pointed out that private capital raising is a potential solution, but Tucker expressed doubt that any transaction could come at a high capital cost. Although it will be some time before the management faces this situation, "we are concerned about the risk relative to ROI".