Comment from S&P that although BBB+ remains the rating levels that the regulator uses to determine allowable return, creditworthiness is negatively affected. More of an issue for BBI as the bulk of its regulated entities trade at lower than peer credit ratings and will need to inject extra capital to maintain or improve ratings. Clearly this reduces cashflow from the subs over the next few years
MELBOURNE (Standard & Poor's) May 4, 2009--Standard & Poor's Ratings Services said today that the Australian Energy Regulator's (AER) final decision on the weighted-average cost-of-capital (WACC) parameters that will affect electricity network companies at their next regulatory price reset has no immediate implications for the ratings on the following companies: The CitiPower Trust (A-/Stable/--), Powercor Australia LLC (A-/Stable/A-2), ETSA Utilities Finance Pty Ltd. (A-/Stable/--), SP AusNet Group (A-/Negative/--), United Energy Distribution Holdings Pty Ltd. (UED; BBB/Stable/--), and ElectraNet Pty Ltd. (BBB+/Negative/A-2). Nevertheless, we consider the AER decision to be adverse for the sector's creditworthiness. The regulator's decision will lower regulated cash flow and, without any corrective actions, erode the already-thin credit metrics of these companies. No immediate rating actions have been taken, however, as we expect these companies to adopt capital-structure remediation strategies over the next 12 months to preserve their respective financial profiles and support their credit ratings. We note that the financial flexibility available to this sector includes lowering discretionary capital expenditure, reducing distributions, and raising new equity. A lack of action in support of credit quality by one or all of these companies could lead to rating downgrade of at least one notch. The Victorian electricity network companies (CitiPower, Powercor, UED, and SP AusNet) will be subject to the first application of the new regulatory framework, with a price reset scheduled to begin in July 2010.
BBI Price at posting:
9.3¢ Sentiment: None Disclosure: Not Held