Investing.com -- Moody’s Ratings has downgraded the ratings of Atmos Energy (NYSE: ATO ) Corporation (Atmos) to A2 from A1, affecting approximately $8 billion of debt instruments. The rating agency also affirmed Atmos’s Prime-1 short term rating for commercial paper and adjusted the outlook to stable from negative.

The downgrade was influenced by Atmos’s credit metrics, which are anticipated to continue at their current lower levels over the long-term. According to Edna Marinelarena, Assistant Vice President at Moody’s Ratings, these metrics align more with an A2 rated utility moving forward. As of December 31, 2024, Atmos’s cash flow from operations before changes in working capital (CFO pre-WC) to debt ratio was 20.5%, below the company’s historical ratio in the 25% range.

Moody’s Ratings had initially expected Atmos’s financial profile to recover following the impact of Winter Storm Uri (2021-2023) and the repayment of excess deferred income tax to customers. However, due to a substantial capital expenditure program and higher debt levels associated with this expenditure, the agency now projects Atmos’s CFO pre-WC to debt ratio to range between 20%-22% over the longer term.

The A2 rating is supported by the low-risk nature of Atmos’s business, which includes fully regulated local distribution company (LDC), intrastate pipeline, and storage operations. Atmos’s operations span across eight states, with Texas being the largest jurisdiction, representing about 75% of its asset base.

Atmos has a history of supportive rate case outcomes and strong cost recovery mechanisms across most of its jurisdictions, providing cash flow transparency. Despite the expected continuation of this rate making framework, the company’s financial profile is being constrained by its significant capital expenditure program, which has increased to about $24.0 billion (2025-2029) from $17.0 billion (2024-2028).

The stable outlook reflects Moody’s Ratings’ expectation that Atmos’s financial metrics will remain at current levels, including a CFO pre-WC to debt ratio ranging between 20% and 22% over the next several years. The outlook also incorporates the belief that the company will keep benefiting from credit supportive rate proceedings and cost recovery mechanisms that allow for timely recovery of its investments.

A rating upgrade could occur if Atmos’s regulatory construct becomes more supportive, or debt issuance slows such that the company’s financial profile improves and its ratio of CFO pre-WC to debt increases to above 23% on a sustained basis. Conversely, a rating downgrade could occur if Atmos’s regulatory construct deteriorates leading to weaker credit metrics including a CFO pre-WC to debt ratio below 20% on a sustained basis. A downgrade could also occur if Atmos deviates significantly from its balanced fiscal policy and issues more debt than currently anticipated.

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