Utilities

Finance

Utilities require expensive critical infrastructure which needs regular maintenance and replacement. Consequently, the industry is capital intensive, requiring regular access to the capital markets for external financing. A utility's capital structure may have a significant debt component, which exposes the company to interest rate risk. Should rates rise, the company must offer higher yields to attract bondinvestors, driving up the utility's interest expenses. If the company's debt load and interest expense become too large, its credit rating will deteriorate, further increasing the cost of capital and potentially limiting access to the capital markets.