Moody's current ratings on SPI (Australia) Assets Pty Ltd are:
Long-Term Issuer Rating (domestic currency) ratings of A3
BACKED Senior Unsecured (domestic currency) ratings of A3
BACKED Senior Unsecured (foreign currency) ratings of A3
BACKED Senior Unsecured MTN (foreign currency) ratings of (P)A3
RATINGS RATIONALE
SPIAA's A3 issuer rating reflects its low business risk profile underpinned by the stable cashflow predominantly generated from its diversified portfolio of low risk gas and electricity infrastructure assets. These assets operate under either long term contracts or regulated environment which enhances the predictability of the company's revenue profile. These credit strengths are offset by SPIAA's high financial leverage relative to investment grade rated industrial issuers and its developing capital management policies. Furthermore, the rating also reflects its ownership by Aa3-rated parent in SP and the expectation of support given the strategic importance of SPIAA to the wider SP group.
Without considering its rating uplift, SPIAA's standalone credit profile is strong relative to other single-asset regulated utilities at the Baa2 level. For instance, the company's FFO/Interest of above 2.5-2.6 times compares favourably to those of Baa2 rated utility peers such as UED and Envestra Ltd. At the same time, the operational diversity and cashflow stability of SPIAA's portfolio of quality energy assets - which includes 4 main income-generating businesses - out weights the company's exposure to its more volatile asset management business.
Whilst SPIAA's current financial metrics would typically indicate a standalone rating stronger than the mid-Baa level, its overall credit profile is constrained by its evolving financial structure and limited track record of its capital management policy. Under a change to its subordination arrangements, SPIAA will have additional ability to make distributions to and prepayment of shareholder Trust Loans under certain conditions. Moody's expects financial return to group's shareholders will gradually ramp up over the coming years.
Rating Outlook
The outlook on SPIAA's A3 rating is stable, reflecting its anticipated stable operating and financial profile over the next 12-18 months.
What Could Change the Rating - Up
Positive rating momentum could emerge over time if SPIAA clarifies its future distribution policies, such that it achieves the following improved metrics on a sustained basis: FFO/Interest above 2.5 times, FFO/Debt above 10%, and
Debt/EBITDA under 5.0-5.5 times. Furthermore, Moody's would look for the company to enhance its liquidity position by removing the rating-related review event clause in its bank facilities.
An intention by SP to guarantee all of SPIAA's future indebtedness would result in an alignment of SPIAA's rating to that of SP.
What Could Change the Rating - Down
At the same time, the rating could come under pressure if the company suffers disappointment in its financial performance or it undertakes material capital management initiatives such as a return of capital. Financial indicators Moody's would look for include: FFO/Interest under 1.6-1.7 times, FFO/Debt under 5%, and Debt/EBITDA above 7 times on a sustainable basis. A downgrade of SP's rating could pressure the company's rating.
The rating could also come under pressure if Moody's perceives a decrease in SPIAA's strategic importance to SP.
The principal methodology used in rating SPI (Australia) Assets Pty Ltd was Regulated Electric and Gas Networks published in August 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
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Spencer NgAsst Vice President - Analyst Corporate Finance Group Moody's Investors Service Pty. Ltd. Level 10 1 O'Connell Street Sydney NSW 2000 Australia JOURNALISTS: (612) 9270-8102 SUBSCRIBERS: (612) 9270-8100 Terry Fanous Managing Director Corporate Finance Group JOURNALISTS: (612) 9270-8102 SUBSCRIBERS: (612) 9270-8100 Releasing Office: Moody's Investors Service Pty. Ltd. Level 10 1 O'Connell Street Sydney NSW 2000 Australia JOURNALISTS: (612) 9270-8102 SUBSCRIBERS: (612) 9270-8100 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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