European Infrastructure Finance Yearbook - Investing In Bonds ...

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UTILITIES Publication Date: Sept. 3, 2007 Issuer Credit Rating: AA-/Watch Neg/A-1+ Primary Credit Analyst: Hugues De La Presle, Paris, (33) 1-4420-6666 Secondary Credit Analyst: Beatrice de Taisne, London, (44) 20-7176-3938 44 ■ NOVEMBER 2007 GAZ DE FRANCE S.A. Rationale On Sept. 3, 2007, Standard & Poor’s Ratings Services said that its ‘AA-/A-1+’ ratings on French gas utility Gaz de France S.A. (GDF) remain on CreditWatch with negative implications following the announcement of the revised terms for the merger between GDF and Franco-Belgian multiutility Suez S.A. (A-/Watch Pos/A-2). The ratings were placed on CreditWatch on Feb. 27, 2006, following the initial merger announcement. The continued negative CreditWatch reflects that, notwithstanding changes in the terms of the merger, it should have a dilutive impact on GDF from a credit standpoint--in terms of both business and financial risk--given Suez’s weaker business mix and financial profile. This is despite the fact that the merger would address GDF’s strategic issues, especially those related to its plans to expand further abroad and in electricity. From a business risk perspective, although Suez is larger and more diversified than GDF, Standard & Poor’s views GDF’s business risk as lower, given the large share of earnings it derives from regulated French businesses. From a financial risk perspective, although Suez’s financial profile has improved, its credit ratios remain significantly weaker than GDF’s. Under the revised terms, 21 GDF shares will be exchanged for 22 Suez shares, with no special dividend being paid. Initially the terms of the merger were a one-for-one share exchange plus a €1 billion special dividend to be paid to Suez shareholders prior to completion. To mitigate the difference in the share prices of Suez and GDF, 65% of the share capital of Suez’s environment arm (20% of first-half 2007 Suez EBIT) will be STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK spun off to Suez’s shareholders at the time of the merger, with the enlarged group retaining a 35% stake. The environment business had reported net debt of €5.4 billion at the end of June 2007, out of Suez’s reported consolidated debt of €12.9 billion. Although the lack of a special dividend and the spin-off of Suez Environment--given its significant debt--are favorable from a financial standpoint compared with the initial terms, the enlarged group intends to offer substantial returns to its shareholders. From a business perspective, although the European water operations (39% of the EBIT of Suez Environment in first-half 2007) rank amongst Suez’s strongest businesses, they would have been small in the context of the enlarged group. These revised terms are a significant step forward but the merger still faces some hurdles, especially its approval by both groups’ shareholders; the signing of the decree allowing the privatization of GDF following the passing of the law in the French parliament; and the opposition of GDF’s unions. To resolve the CreditWatch placement we will focus on the enlarged group’s strategy and financial policy. Short-term credit factors The ‘A-1+’ short-term rating is supported by GDF’s sound liquidity, with available cash at the end of June 2007 of about €3 billion and an undrawn €3 billion committed syndicated credit facility, which more than cover short-term debt maturing in the next 12 months of €1.1 billion. Beyond 2007, GDF has limited debt maturities. ■
Publication Date: July 4, 2007 Issuer Credit Rating: A/Watch Neg/A-1 Primary Credit Analyst: Ana Nogales, Madrid, (34) 91-788-7206 Secondary Credit Analyst: Peter Kernan, London, (44) 20-7176-3618 IBERDROLA S.A. Rationale The ratings on Spanish utility Iberdrola S.A. remain on CreditWatch with negative implications following the acquisition of Scottish Power PLC (A-/Watch Neg/A-2) on April 23, 2007, and the company’s announcement on June 25, 2007, of its bid to acquire 100% of U.S. utility Energy East Corp. (BBB+/Negative/A-2). For a summary of Iberdrola’s CreditWatch history, see the section “CreditWatch History” toward the end of this article. Iberdrola will pay €3.4 billion in cash and assume Energy East’s debt of €3 billion. The transaction, subject to approval by Energy East’s shareholders and to receipt of all the necessary authorizations, is expected to close in the second half of 2008. Notwithstanding this, Iberdrola has already raised close to €3.4 billion of new equity to fund this transaction. Energy East is a holding company that owns six regulated utilities (mainly transmission and distribution) and several smaller, nonregulated companies in upstate New York, Connecticut, Maine, and Massachusetts. The ratings will remain on CreditWatch pending Standard & Poor’s meeting with Iberdrola in the second half of 2007 to discuss the group’s revised business and financial strategy and analyze its financial forecasts and planned financial structure. We will also focus on the group’s future risk tolerance and acquisition strategy. Standard & Poor’s understands that Iberdrola aims to maintain an ‘A’ category rating. Based on publicly available information, we expect any lowering of our long-term rating on Iberdrola upon resolution of the CreditWatch listing to be limited to one-to-two notches. This preliminary assessment does not, however, include the potential fiscal benefits from the amortization of the goodwill from the acquisition of Scottish Power PLC or from synergies from Scottish Power’s integration within Iberdrola. STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK UTILITIES Iberdrola’s strong position as one of Spain’s two largest vertically integrated electricity groups underpins the ratings. The recently acquired business will increase the group’s earnings diversity, both geographic and operational, but will result in a weaker capital structure and will present integration challenges. At March 31, 2007, the group’s debt and EBITDA pro-forma figures (including the Scottish Power acquisition) were €29.8 billion and €5.8 billion, respectively. Short-term credit factors Iberdrola’s short-term rating is ‘A-1’, underpinned by an acceptable liquidity position prior to the acquisition of Scottish Power. At end-March 2007, available cash, short-term financial investments of €1.15 billion, and committed undrawn credit facilities of €2.2 billion, more than fully covered the €1.1 billion in debt maturing in 2007. In addition, the group announced on May 28, 2007, that it intends to carry out a partial IPO of the combined group’s renewable business, which could generate €3.3 billion-€4.5 billion. CreditWatch History The ratings on Iberdrola were placed on CreditWatch with negative implications on Sept. 6, 2005, following Spanish utility Gas Natural SDG, S.A.’s (A+/Negative/A-1) €22.55 billion bid for a 100% stake in Endesa S.A. (A/Watch Neg/A-1) and its agreement to a subsequent sale of an estimated €7 billion-€9 billion in assets to Iberdrola. On Dec. 1, 2006, we lowered our longterm rating on Iberdrola to ‘A’ from ‘A+’, owing to the group’s offer for Scottish Power made on Nov. 28, 2006. The ratings on Iberdrola have remained on CreditWatch with negative implications since then, despite the withdrawal of Gas Natural’s bid on Feb. 1, 2007, owing to the expected negative financial impact of the acquisition of Scottish Power. ■ NOVEMBER 2007 ■ 45
Page 1 and 2: November 2007 Infrastructure Financ
Page 3 and 4: CONTENTS Introduction STANDARD & PO
Page 5 and 6: INTRODUCTION 2007: New Challenges A
Page 8 and 9: ject Finance Rating Distribution: I
Page 10 and 11: COMMENTARY Publication Date: Sept.
Page 12 and 13: (Bil. ) 140 120 100 80 60 40 20 0 F
Page 14 and 15: UTILITIES EUROPEAN UTILITIES Once a
Page 16 and 17: UTILITIES approach to ownership unb
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RATINGS LIST RATINGS LIST Utilities
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RATINGS LIST Transportation Infrast
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RATINGS LIST Project Finance Name I
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CONTACTS KEY ANALYTICAL CONTACTS Fr
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ARGENTINA AUSTRALIA BRAZIL CANADA C
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