Correct: Fitch Revises Outlook on 5 UK Electricity Distribution Networks to Negative
(The following statement was released by the rating agency)
LONDON, November 20 (Fitch) This announcement corrects the version published on 1 October 2014 to include the ratings of Northern Electric Finance plc and Yorkshire Power Finance Ltd.
Fitch Ratings has revised the Outlook of five UK electricity distribution networks (DNOs) to Negative from Stable and affirmed their Long-term Issuer Default Ratings. The affected DNOs are Northern Powergrid (Northeast) Limited, Northern Powergrid (Yorkshire) plc, Northern Powergrid Holdings Company, Eastern Power Networks plc and Western Power Distribution (South Wales) plc.
In addition, the IDRs of London Power Networks plc have been placed on Rating Watch Negative.
We have also affirmed the IDRs with Stable Outlook for South Eastern Power Networks plc, Electricity North West Limited, North West Electricity Networks Limited, Western Power Distribution (South West) plc and PPL WW Holdings Limited. A full list of rating actions is provided at the end of this commentary.
The rating actions follow our review of the regulator's draft determinations for the forthcoming eight-year price control covering FY15-23 and in particular, our expectation that some DNOs may struggle to meet interest cover metric guidelines for their ratings.
KEY RATING DRIVERS
Reduction in Regulated Earnings
The recent draft determinations that the UK Regulator (Ofgem) published provide all networks with a reduction in earnings over the eight-year price control, which commences in April 2015. This is a result of a lower allowed weighted average cost of capital (WACC), stricter allowances on spend, tougher output targets including against incentive outperformance, and the closing out of the DPCR4 losses mechanism.
Earnings can be enhanced through outperformance against total expenditure allowances and through incentive earnings. Fitch estimates conservative performance and notes that targets have been significantly tightened against incentive parameters and total expenditure allowances which will constrain the amount of additional earnings that can be generated.
Lowest Allowed Return
The allowed return is set at its lowest level to date with cost of equity reducing to 6% for slow tracked networks from 6.7% in DPCR5, and cost of debt indexed at 2.6% compared with a fixed level of 3.6% in DPCR5. Overall WACC is expected to start at 3.79% for slow tracked networks, versus 4.7% in DPCR5.
Weakening Interest Cover
Some UK DNOs in particular face high interest costs due to legacy bonds that were issued when interest rates were higher. Fitch believes that the regulator's strict cost of debt allowance does not sufficiently provide for coverage against these legacy bonds and as a result expected post maintenance interest cover (PMICR) has considerably reduced against existing guidelines.
The Negative Outlooks are thus chiefly driven by Fitch's expectation that the affected DNOs' forecast PMICR will fall outside Fitch's existing guidelines over the price control as a result of a reduction in earnings and high cash interest costs. London Power Networks plc has been placed on Rating Watch Negative due to a weakened PMICR and, under Fitch's assumptions, very limited headroom under leverage ratio guidelines.
Leverage Also Under Pressure
Fitch currently forecasts most DNOs to remain within our leverage guidelines for their respective ratings. However, should they wish to maintain their current dividend levels, headroom can be expected to diminish. Our rating reviews will focus on Ofgem's final determination and DNOs' revised business plans, including capital structure and dividend policies for the new price control. The Stable Outlook for North West Electricity Networks Limited assumes that leverage will remain at 75%-77%.
FULL LIST OF RATING ACTIONS
Northern Powergrid
Northern Powergrid Holdings Company
Long-term IDR: affirmed at 'BBB+'; Outlook revised to Negative from Stable
Senior unsecured rating: affirmed at 'A-'
Short-term IDR: affirmed at 'F2'
Yorkshire Power Group Limited:
Long-term IDR: affirmed at 'BBB+'; Outlook revised to Negative from Stable
Short-term IDR: affirmed at 'F2'
Yorkshire Power Finance Ltd:
Senior unsecured notes affirmed at 'A-', guaranteed by Yorkshire Power Group Limited
Yorkshire Electricity Group PLC:
Long-term IDR: affirmed at 'BBB+'; Outlook revised to Negative from Stable
Short-term IDR: affirmed at 'F2'
Northern Electric plc:
Long-term IDR: affirmed at 'BBB+'; Outlook revised to Negative from Stable
Short-term IDR: affirmed at 'F2'
Northern Powergrid (Northeast) Limited:
Long-term IDR: affirmed at 'A-'; Outlook revised to Negative from Stable
Short-term IDR: affirmed at 'F2'
Northern Electric Finance Plc:
Senior unsecured notes affirmed at 'A', guaranteed by Northern Powergrid (Northeast) Limited
Northern Powergrid (Yorkshire) plc:
Long-term IDR: affirmed at 'A-'; Outlook revised to Negative from Stable
Senior unsecured rating: affirmed at 'A'
Short-term IDR: affirmed at 'F2'
RATING SENSITIVITIES
Positive: Currently, the probability of a positive rating action is low, given that changes to be implemented in the next price controls are yet to be finalised and evaluated and could lead to revised rating guidelines for the sector. Assuming that management will maintain a capital structure not materially deviating from the regulator's 65% notional gearing, there is little scope for upgrades.
Negative: Future developments that may, individually or collectively, lead to a negative rating action include:
- Northern Powergrid Northeast and Yorkshire: regulatory asset value (RAV)-based leverage above 60% and PMICR below 1.9x
- Northern Powergrid Holdings Company: RAV-based leverage above 75% and PMICR below 1.6x
UK Power Networks
Eastern Power Networks plc:
Long-term IDR: affirmed at 'BBB'; Outlook revised to Negative from Stable
Senior unsecured rating: affirmed at 'BBB+'
Short-term IDR: affirmed at 'F3'
South Eastern Power Networks plc:
Long-term IDR: affirmed at 'BBB'; Outlook Stable
Senior unsecured rating: affirmed at 'BBB+'
Short-term IDR: affirmed at 'F3'
London Power Networks plc
Long-term IDR of 'BBB+' placed on Rating Watch Negative
Senior unsecured rating of 'A-' placed on Rating Watch Negative
Short-term IDR of 'F2' placed on Rating Watch Negative
RATING SENSITIVITIES
Positive: Currently, the probability of a positive rating action is low, even if the financial metrics listed below are achieved, given that changes to be implemented in the next price controls are yet to be finalised and evaluated and could lead to revised rating guidelines for the sector. Future developments that nevertheless may, individually or collectively, lead to a positive rating action include:
- London Power Networks plc: Decline in RAV-based leverage to below 60% and rise in PMICR above 2x, on a sustained basis, together with a top third-quartile position in terms of regulatory performance
- South Eastern Power Networks plc and Eastern Power Networks plc: An improvement in PMICR above 1.7x and a decline in RAV- based leverage to below 70% on a sustained basis, together with a top third-quartile position in terms of regulatory performance
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- London Power Networks plc: PMICR falling below 1.6x and RAV-based leverage increasing over 73% on a sustained basis
- South Eastern Power Networks plc and Eastern Power Networks plc: PMICR falling below 1.4x and RAV-based leverage rising over 73% on a sustained basis
Western Power Distribution
PPL WW Holdings Ltd
Long-term IDR: affirmed at 'BBB-'; Outlook Stable
Senior unsecured rating: affirmed at 'BBB'
Western Power Distribution (South Wales) Plc
Long-term IDR: affirmed at 'BBB+'; Outlook revised to Negative from Stable
Senior unsecured rating: affirmed at 'A-'
Short-term IDR: affirmed at 'F2'
Western Power Distribution (South West) Plc
Long-term IDR: affirmed at 'BBB+'; Outlook Stable
Senior unsecured rating: affirmed at 'A-'
Short-term IDR: affirmed at 'F2'
RATING SENSITIVITIES
Positive: Currently, the probability of a positive rating action is low even if the financial metrics listed below are achieved, given that changes to be implemented in the next price controls are yet to be finalised and evaluated and could lead to revised rating guidelines for the sector. Future developments that nevertheless may, individually or collectively, lead to a positive rating action include:
-South Wales and South West: Decline in RAV based and pension-adjusted net leverage to below 65% and rise in PMICR above 2x, on a sustained basis
-PPL WW Holdings: An upgrade of its operating subsidiaries, South Wales and South West, would support an upgrade along with an improvement in PMICR above 1.6x and a decline in RAV-based, pension-adjusted net leverage to below 75% on a sustained basis
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
-South Wales and South West: PMICR below 1.6x and RAV-based, pension-adjusted net leverage over 73% on a sustained basis
-PPL WW Holdings: PMICR below 1.3x and RAV-based, pension-adjusted net leverage over 90% on a sustained basis
Electricity North West
Electricity North West Limited (ENW)
Long-term IDR: affirmed at 'BBB+'; Outlook Stable
Senior unsecured rating: affirmed at 'A-'
Short-term IDR: affirmed at 'F2'
North West Electricity Networks Limited (NWEN)
Long-term IDR: affirmed at 'BBB'; Outlook Stable
ENW Finance plc
Senior unsecured guaranteed notes affirmed at 'A-'
ENW Capital Finance plc
Senior secured guaranteed notes affirmed at 'BBB+'
Bonds issued by ENW Finance plc, a financing subsidiary of ENW, are for the benefit of ENW and are guaranteed by ENW, and bonds issued by ENW Capital Finance plc are guaranteed by NWEN, the immediate parent of ENW.
RATING SENSITIVITIES
Positive: Currently, the probability of a positive rating action is low even if the financial metrics listed below are achieved, given that changes to be implemented in the next price controls are yet to be finalised and evaluated and could lead to revised rating guidelines for the sector. Future developments that nevertheless may, individually or collectively, lead to positive rating action include:
- Electricity North West Limited: PMICR above 2x and a decline in RAV-based leverage below 60% on sustained basis
- North West Electricity Networks Limited: An upgrade of its operating subsidiary, Electricity North West Limited, would support an upgrade along with an improvement in PMICR above 1.6x and a decline in RAV-based leverage below 75% on a sustained basis
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- Electricity North West Limited: PMICR below 1.6x and RAV-based leverage over 74% on a sustained basis
- North West Electricity Networks Limited: PMICR below 1.4x and RAV-based leverage over 84% on a sustained basis
Principal Analysts
Amee Shokur (Western Power Distribution)
Victoria Munarriz (UK Power Networks and Electricity North West)
Associate Director
Ana Gaspar (Northern Powergrid)
Associate Director
Supervisory Analysts
Oliver Schuh (Northern Powergrid)
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
Chris Moore (UK Power Networks, Electricity North West and Western Power Distribution)
Committee Chairperson
Raymond Hill
Senior Director
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 , Email: peter..
Additional information is available on (www.fitchratings.com)
Applicable criteria, 'Corporate Rating Methodology', dated 28 May 2014, are available at (www.fitchratings.com).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
(http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393)
Additional Disclosure
Solicitation Status
(http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=929295)
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: (HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS). IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '(WWW.FITCHRATINGS.COM)'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
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我们会通过消息、邮箱等方式尽快将举报结果通知您。Research: Rating Action: MOODY'S INVESTORS SERVICE ASSIGNS A B1 TO BUCKEYE TECHNOLOGIES, INC.'S PROPOSED GTD. SR. SECURED CREDIT FACILITY DUE 2010; CONFIRMS EXISTING RATINGS AND AFFIRMS NEGATIVE OUTLOOK. - Moody's
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MOODY'S INVESTORS SERVICE ASSIGNS A B1 TO BUCKEYE TECHNOLOGIES, INC.'S PROPOSED GTD. SR. SECURED CREDIT FACILITY DUE 2010; CONFIRMS EXISTING RATINGS AND AFFIRMS NEGATIVE OUTLOOK.
Approximately $670 million in debt affected
New York, October 08, 2003 -- Moody's Investors Service assigned a B1 rating to Buckeye Technologies
Inc.'s (&Buckeye&) proposed $220 million guaranteed
senior secured credit facility comprised of a $70 million guaranteed
senior secured revolving facility due September 15, 2008 and a $150
million guaranteed senior secured term loan due April 15, 2010.
The term loan facility together with approximately $7 million drawn
under the revolving facility are expected to be used to repay approximately
$135 million drawn under the existing revolver, refinance
the $30 million accounts receivable securitized revolver upon maturity
in December 2003, and pay transaction fees and expenses of approximately
$4 million associated with the refinancing (including consent solicitation
fee to the holders of 9.25% senior subordinated notes due
2008). The rating is contingent upon the receipt of final documentation
in form and substance acceptable to Moody's.
At the same time, Moody's confirmed the existing ratings of
Buckeye as outlined below:
$200 million issue of 8.5% guaranteed senior unsecured
notes due 2013, confirmed at B3;
$100 million issue of 9.25% senior subordinated notes
due 2008, confirmed at Caa1;
$150 million issue of 8.0% senior subordinated notes
due 2010, confirmed at Caa1;
$150 million issue of 8.5% senior subordinated notes
due 2005, confirmed at Caa1. This rating will be withdrawn
following its expected October 22, 2003 redemption.
Senior Implied Rating confirmed at B2;
Senior Unsecured Issuer Rating confirmed at B3.
The rating outlook remains negative.
The ratings reflect Buckeye's high leverage with no near term ability
weak but improving profitability and low
somewhat improved access to tap the revolver if
necessary due to the reset bank covenant tests, as well as a 20%
sales concentration with a key customer.
The ratings are supported by the company's leading market positions
in mos broad range of specialized products offered
the company's leadership in product innovations
the lack of material debt maturities prior to 2008;
and its experienced management team with a sizable equity interest in
the company.
The negative outlook reflects Moody's concerns with Buckeye's weak
internal free cash flow generation, measured as cash from operations
less capex, and the limited availability under the committed revolver
in the short term. Should the company's free cash flow generation
deteriorate as a result of increased capital spending or weakened profitability,
the ratings could be negatively impacted. Sustained improvements
in the company's generation of free cash flow could lead to a stable
The B1 rating on the guaranteed senior secured credit facility reflects
the benefits of the security package and guarantees from the domestic
operating subsidiaries. The rating also reflects sufficient coverage
of the claims under the bank facility based on Moody's estimation
of the enterprise value of the firm. The facility is secured by
the first priority lien on all of the assets of the domestic subsidiaries
of the company, and a pledge of 66% of the stock of the company's
foreign subsidiaries. The facility is guaranteed by each of the
company's existing and future domestic operating subsidiaries and
by material foreign subsidiaries to the extent available without adverse
tax consequences. Availability under the revolving facility is
limited by the outstandings under the accounts receivable securitized
facility, which currently stands at approximately $25 million,
as well as by outstandings under the company's C$16 million
revolver due 2004. The term loan is minimally amortizing.
Buckeye Technologies Inc., based in Memphis, Tennessee,
produces and markets specialty cellulose products made from both wood
and cotton, utilizing air-laid and wet-laid processes.
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Catherine Guinee
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
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