The following is a press release from Moody's Investors Service:
Approximately NZ$150 million in debt securities affected
Sydney, November 26, 2009 -- Moody's Investors Service has today upgraded Prime Infrastructure Group's (Prime Infrastructure) corporate family rating to Ba2 from B1, and BBI Finance Pty Ltd's senior secured rating to Ba3 from B2. BBI Finance is wholly-owned by Prime Infrastructure whose name was recently changed from Babcock & Brown Infrastructure Group.
This concludes the rating review initiated on October 2, 2009 following Prime Infrastructure's announced recapitalization plan. The outlook on both ratings is stable.
"The ratings upgrade is driven by the considerable improvement in Prime Infrastructure's financial and liquidity profile following its capital raising and debt repayment," says Clement Chong, a Moody's VP/Senior Analyst.
Moody's has previously indicated that Prime Infrastructure's ratings would be upgraded to Ba2/Ba3 following the completion of the recapitalization, which included A$1.8 billion in capital raised. Of that amount, about A$1.1 billion was used to reduce outstanding bank debt at the corporate level.
"Prime Infrastructure's Ba2 corporate family rating reflects the group's ownership interests in a suite of infrastructure assets which exhibit low business risk profile," says Chong, adding, "It also reflects the group's financial profile which is strong for the current rating."
"However, the rating is constrained at the Ba2 level because of the group's narrower business profile following recent asset sales, and the need to demonstrate a track record around future business strategy, and financial and capital policy that would be maintained on a sustainable basis," says Chong.
The Ba3 senior secured rating on BBI Finance's secured New Zealand bond is one notch lower than the corporate family rating because of the preponderance of debt at the group's investments.
Prime Infrastructure owns a suite of infrastructure assets which generate relatively stable cash flows due to their competitive positions in the markets they serve. As a result, they generate relatively stable cash flows.
The group's financial profile has improved materially following the recapitalization. In the next two years, Moody's estimated consolidated financial metrics for Prime Infrastructure are: FFO/Interest 2.0-2.1 times, and Debt/EBITDA around 6 times. These metrics incorporate the group's share of debt at partly-owned investments and 100% of debt at majority-owned investments. Furthermore, Moody's expects the following standalone financial metrics for Prime Infrastructure: FFO/Interest greater than 5 times, and Debt/EBITDA under 1 time.
Prime Infrastructure's good liquidity profile is supported by cash flows in the form of equity distributions from its investments, and the lack of material debt maturity over the next 12 months.
Prime Infrastructure's business profile has narrowed given recent asset sales as part of the group's effort to recapitalize and improve its liquidity position. The majority of the group's earnings are expected to be generated by three investments. Furthermore, Prime Infrastructure only has minority stakes in two of these three investments and, as such, does not control their strategic direction or distribution policies.
The group's business profile has evolved very rapidly due to its acquisitive past, and more recently, asset sales as part of its effort to rectify its financial and liquidity position. Such a history constrains the group's rating in the Ba level, until it establishes a track record of stability in its business, financial, and liquidity platforms.
However, Moody's believes the presence of a strategic shareholder in Brookfield Asset Management ("Brookfield", rated Baa2) will add stability in Prime Infrastructure's business strategy and financial discipline. In this regard, Prime Infrastructure's ratings could benefit over time from the demonstration of stability in its strategies under the influence of Brookfield.
The stable outlook on the ratings reflects Prime Infrastructure's strong financial profile for the rating and the group's excellent liquidity position.
Moody's sees little opportunity for a rating upgrade in the short-term. Beyond this, a track record of executing its strategies based on the current business profile, and the maintenance of a robust liquidity profile, could lead to a rating upgrade. This is under the proviso there is no material deterioration in its consolidated and standalone financial metrics from the above-mentioned levels.
Prime Infrastructure's ratings could face downward pressure if the group materially re-leverages itself, as indicated by the following financial metrics: consolidated FFO/Interest falling below 1.5 times, and Debt/EBITDA rising above 9 times.
The last rating action with respect to Prime Infrastructure was taken on November 17, 2009, when Moody's continued the review of Prime Infrastructure's ratings after the approval of the group's recapitalization plan by its security-holders and Exchangeable Preference Share holders.
Prime Infrastructure's ratings were assigned by evaluating factors we believe are relevant to the credit profile of the issuer, such as Prime Infrastructure's i) business risk and competitive position versus other companies within the industry; ii) capital structure and financial risk; iii) projected performance over the near to intermediate term; and iv) management's track record and tolerance for risk.
These attributes were compared with other issuers both within and outside Prime Infrastructure's core industry.
Prime Infrastructure, based in Sydney, is an infrastructure fund which owns a series of infrastructure assets.
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November 26, 2009 01:39 ET (06:39 GMT)
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