Southwest Gas ratings affirmed as Fitch keeps stable outlook on utility-led credit profile

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Southwest Gas Fitch ratings stable

Highlights

Fitch affirmed Southwest Gas Holdings' 'BBB' and Southwest Gas Corporation's 'BBB+' and 'F2' ratings with a stable outlook, as regulated operations now account for 100% of ongoing EBITDA post-Centuri separation.
Fitch expects funds from operations leverage to rise to 5.6x at Southwest Gas Holdings and 4.8x at Southwest Gas Corporation by end-2028, close to downgrade sensitivities of 5.8x and 5.0x.
Southwest Gas plans substantial investment, including the $1.7 billion Great Basin Gas Transmission Co. pipeline expansion, supported by constructive rate case outcomes and anticipated conservative financial policy through 2028.

Credit profile after Centuri separation

As reported by Fitch Ratings, Southwest Gas Holdings, Inc.'s Long-Term Issuer Default Rating remains at 'BBB', while subsidiary Southwest Gas Corporation keeps its Long- and Short-Term IDRs at 'BBB+' and 'F2'. The outlook on all ratings is stable.

Fitch says the holding company's business risk profile improves after the separation of Centuri Holdings, its former unregulated gas and utility infrastructure services business, in the third quarter of 2025. Regulated operations now account for 100% of ongoing EBITDA, up from 78% in 2024, leaving the group focused entirely on regulated gas distribution and transmission through Southwest Gas Corporation.

The agency also notes that parent-level debt was repaid with proceeds from the separation. Even so, it expects new debt issuance at the parent company to help fund equity contributions to the utility as investment needs remain high, including the $1.7 billion Great Basin Gas Transmission Co. pipeline expansion.

Leverage pressure and rate case support

Fitch projects funds from operations leverage to rise to 5.6x at Southwest Gas Holdings and 4.8x at Southwest Gas Corporation by the end of 2028. Those levels remain consistent with current ratings, though the agency says headroom is limited because they sit close to downgrade sensitivities of 5.8x and 5.0x, respectively.

For the utility subsidiary, Fitch cites a low-risk regulated gas distribution profile, constructive rate case outcomes and adequate credit metrics during rate case refreshes in Arizona, Nevada and California. The agency views likely formula rates in Arizona and alternative ratemaking in Nevada as credit positive.

Fitch also expects the company to maintain a conservative financial policy over 2026 through 2028. It says the utility is likely to fund most external dividend requirements, while Southwest Gas Corporation's payout ratio is expected to move from about 30% in 2025 toward the low end of the typical utility range of 60% to 70% by 2028.

Our earlier coverage of Fitch’s downgrade of the Waterworks and Sewer Gas Board of Section, Alabama highlighted how ongoing financial difficulties and operational concerns weakened its credit profile. We noted that Fitch cut the rating to 'BBB' from 'BBB+' on deteriorating debt-related metrics and then withdrew coverage, leaving stakeholders with less third-party assessment when evaluating future borrowing conditions.

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