FET's Exchange Offer for 4.750% Senior Notes Due 2033: Liquidity Optimization and Credit Risk Mitigation in Regulated Utility Infrastructure

FirstEnergy Transmission, LLC (FET) has initiated an exchange offer for up to $450 million of its 4.750% Senior Notes due 2033, a move aimed at optimizing liquidity and mitigating credit risk in its regulated utility infrastructure operations. The exchange, which expires on January 7, 2026, replaces unregistered notes with newly issued, SEC-registered counterparts under identical terms, including a 4.750% coupon rate and a maturity date of January 15, 2033. This transaction, while not a new financing, underscores FET's commitment to regulatory compliance and investor confidence.

Liquidity Optimization Through Exchange

The exchange offer aligns with FET's broader liquidity strategy. By converting unregistered notes into registered securities, the company enhances the marketability of its debt, potentially reducing refinancing costs and improving access to capital markets. The notes, which bear semi-annual interest payments starting January 15, 2026, are part of a $500 million public offering priced at 99.178% of par, with net proceeds estimated at $492.8 million. These funds are earmarked for repaying commercial paper obligations and supporting general corporate purposes, including capital expenditures and acquisitions. This restructuring ensures that FET's long-term debt remains aligned with its operational cash flow projections, a critical factor in maintaining its status as a regulated utility with predictable revenue streams.

Credit Risk Mitigation and Structural Guarantees

Credit risk for the 4.750% Senior Notes is mitigated by their senior unsecured status and full, unconditional guarantees from Healthpeak Properties, Inc., and its subsidiaries. Despite being structurally subordinated to secured debt and non-guarantor subsidiaries, the guarantees provide a layer of security for investors. Fitch Ratings has affirmed FET's robust credit profile with a 'BBB+' Issuer Default Rating (IDR), citing its low business risk and stable cash flow generation. However, the notes' unsecured nature introduces exposure to the issuer's broader liabilities, necessitating close monitoring of FET's debt-to-EBITDA ratios and covenant compliance.

A critical nuance lies in the distinction between FET and Healthpeak OP, LLC, the latter being the official issuer of the 4.750% Senior Notes. While FET is a subsidiary of FirstEnergy Corp., Healthpeak OP operates independently, focusing on real estate and healthcare infrastructure. This separation clarifies that the exchange offer does not directly impact FET's core utility operations but rather reflects Healthpeak OP's efforts to streamline its capital structure. Investors must evaluate the creditworthiness of both entities separately, though FET's strong regulatory oversight and Healthpeak's guarantees collectively reinforce the notes' appeal.

Regulatory Compliance and Reputational Risks

FET's recent regulatory challenges, including a $250 million fine for misconduct, tied to a bribery scandal involving former Ohio House Speaker Larry Householder, introduce reputational risks. While the Sixth Circuit Court's recent ruling on attorney-client privilege in FET's internal investigations signals procedural rigor, the company's compliance record remains under scrutiny. These developments highlight the importance of governance frameworks in mitigating credit risk, particularly for regulated utilities where operational integrity is paramount.

Conclusion

FET's exchange offer for the 4.750% Senior Notes due 2033 represents a strategic step toward liquidity optimization and credit risk mitigation. By leveraging registered debt and robust guarantees, the company strengthens its capital structure while adhering to regulatory expectations. However, investors should remain vigilant about the indirect risks posed by FET's recent regulatory actions and the structural subordination inherent in unsecured notes. For regulated utilities, such transactions underscore the delicate balance between financial flexibility and risk management in an evolving regulatory landscape.