TEXT-S&P rates Enagas Transporte 'A-/A-2', outlook negative
Sept 28 - Overview -- As prescribed by Spanish law, Enagas S.A. has segregated its regulated gas transportation activities in Spain into its new, wholly owned subsidiary, Enagas Transporte S.A.U. -- Enagas S.A.'s debt is now structurally subordinated to Enagas Transporte's. -- We are assigning our 'A-/A-2' long- and short-term ratings to Enagas Transporte. -- We are also assigning an 'A-' issue rating to Enagas Financiaciones S.A.U.'s EUR500 million bond that is jointly and severally guaranteed by Enagas S.A. and Enagas Transporte. -- The negative outlook mirrors that on Enagas, which in turn reflects that on Spain. Rating Action On Sept. 28, 2012, Standard & Poor's Ratings Services assigned its 'A-/A-2' long- and short-term corporate credit ratings to Spanish gas grid operator Enagas Transporte S.A.U., the core subsidiary of Enagas S.A., which operates Spain's regulated gas transport assets. The outlook is negative. At the same time, we assigned an 'A-' issue rating to the EUR500 million bond maturing in 2017, issued by Enagas Financiaciones S.A.U. under its European Medium Term Note (EMTN) program and jointly and severally guaranteed by Enagas S.A. and Enagas Transporte. Rationale Our ratings on Enagas Transporte reflect the stand-alone credit profile (SACP) of the consolidated Enagas group (Enagas), in accordance with our criteria governing the link between parents and subsidiaries. The rating also reflects our opinion that there is a "moderate" likelihood that the Spanish government (Kingdom of Spain; BBB+/Negative/A-2) would provide timely and sufficient extraordinary support to Enagas in the event of financial distress. Following Spain's enactment of the Additional Provision no. 31 of the Hydrocarbons Law, Enagas S.A. segregated its regulated gas transportation activities in Spain into its newly created, wholly owned subsidiary, Enagas Transporte. The transfer of all related assets and liabilities became effective on July 2, 2012, when the public deed of segregation was registered with the Mercantile Registry. The two outstanding bonds and three bank loans held at Enagas that we rate are now held at Enagas Transporte. Enagas Transporte is Enagas S.A.'s principal asset and will be its largest source of cash flow through dividends. Dividends from international investments will make up the rest of Enagas S.A.'s cash flow. Our 'A-' issue rating on Enagas Transporte's senior unsecured debt is in line with the corporate credit rating. We will rate any future senior unsecured debt issued by Enagas S.A. one notch lower at 'BBB+' owing to structural subordination. This reflects that most priority liabilities are held at operating company Enagas Transporte, which holds more than 80% of group debt. This subordination is further exacerbated by some regulatory ring-fencing. The Comision Nacional de Energia, the Spanish energy regulator, prohibits Enagas Transporte from granting guarantees that are not exclusively related to the financing of regulated gas transportation activities. Subordination affects debts or guarantees issued at Enagas S.A. and Enagas Financiaciones, the wholly-owned financing vehicle of Enagas. It does not affect, however, the debt issued by Enagas Financiaciones that is jointly and severally guaranteed by Enagas S.A. and Enagas Transporte, and which is earmarked to finance regulated gas transportation activities under Enagas' EMTN program. We assess the group's SACP at 'a-', based on its "strong" business risk profile and "intermediate" financial risk profile. Enagas' "strong" business risk profile reflects the group's national strategic importance to Spain's gas, and, indirectly, power system, and its near-monopolistic market position in a supportive regulatory environment. Our assessment is also underpinned by Enagas' regulated asset-based revenues that are immune to volume and price risks and partially hedged against inflation and sovereign bond yield increases. Constraints include the increasingly uncertain regulatory environment surrounding the rising political and economic risks in Spain, where the government decides on gas infrastructure regulation, and Enagas' growing appetite for the acquisition of gas assets in potentially less-supportive jurisdictions. We regard Enagas' financial risk profile as "intermediate," reflecting the group's large and predictable regulated cash flows, prudent liability management, and our expectation of positive and growing discretionary cash flow on the back of falling capital expenditure (capex). These strengths are partially offset by high debt, the negative effect of a gas tariff deficit on cash flows, and an increasingly aggressive dividend policy. Liquidity Enagas Transporte's liquidity position reflects that on Enagas. We assess Enagas' liquidity as "strong," as defined in our criteria. Projected sources of funds exceed projected uses by about 2.0x over the next 12 months. We factor into our liquidity assessment, based on our estimates, the following sources on June 30, 2012: -- EUR1.4 billion in available cash, net of outstanding commercial paper, plus the EUR0.5 billion proceeds of the abovementioned bond issue; -- Estimated funds from operations exceeding EUR700 million; and -- About EUR800 million in available committed credit lines maturing beyond 12 months. These lines include EUR110 million of European Investment Bank (EIB; AAA/Stable/A-1+) facilities. Against these sources, we factor in the following liquidity uses: -- Short-term debt of about EUR0.9 billion including a EUR500 million bullet bond, which matured on July 6, 2012; -- Our estimate of EUR0.6 billion in capex or acquisitions; and -- Dividend payments of about EUR250 million. Outlook The negative outlook on Enagas Transporte reflects that on Enagas, which mirrors that on Spain. Under our criteria, the long-term rating on Spain constrains the ratings on Enagas S.A., and therefore on Enagas Transporte, based on our view that they bear "high" exposure to Spanish country risk. A downgrade of Spain to 'A-' or lower would automatically trigger a similar downgrade of Enagas S.A. and Enagas Transporte. We could also lower our ratings on both entities if Enagas faces unexpected and far-reaching regulatory changes that undermine its business risk or financial risk profiles. Ratings upside is very limited at this stage, and, all else being equal, would be conditional on an upgrade of Spain Related Criteria And Research -- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008 -- Corporate Ratings Criteria--Rating Each Issue: Distinguishing Issuers and Issues; Junior Debt: Notching Down; Well-Secured Debt: Notching Up; Commercial Paper; Preferred Stock, Oct. 28, 2004 -- Corporate Criteria--Parent/Subsidiary Links; General Principles; Subsidiaries/Joint Ventures/Nonrecourse Projects; Finance Subsidiaries; Rating Link to Parent, Oct 28, 2004 -- Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010 Ratings List New Rating; CreditWatch/Outlook Action Enagas Transporte S.A.U. Corporate Credit Rating A-/Negative/A-2 Enagas Financiaciones S.A.U. Senior Unsecured* A- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Enagas Financiaciones S.A.U. European Medium-Term Note Program* A-/A-2 European Medium-Term Note Program(4) BBB+/A-2 *Guaranteed by Enagas S.A. and Enagas Transporte S.A.U. (4)Guaranteed by Enagas S.A. Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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