TEXT-Fitch revises NIE's outlook to stable, maintains notes on RWN

Thu Jan 31, 2013 9:01am EST

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Jan 31 - Fitch Ratings has affirmed Northern Ireland Electricity Limited's (NIE) Long-term Issuer Default Rating (IDR) at 'BBB+'. The Outlook on the Long-term IDR has been revised to Stable from Negative. The agency has maintained NIE's 'A-' senior unsecured rating on Rating Watch Negative (RWN). The 'A-' rating of GBP400m notes due 2026 issued by NIE Finance plc also remains on RWN.

The affirmation of the Long-term IDR and the Stable Outlook reflect NIE's ties to its ultimate parent Electricity Supply Board (ESB; Long-term IDR 'BBB+'/Stable; senior unsecured rating 'BBB+') including full ownership, the fact that NIE's liquidity funding is provided by ESB and the back-to-back interest rate swap arrangements entered into by the two companies in April 2011.

KEY DRIVERS

ESB's Ratings

Fitch affirmed ESB's Long-term IDR at 'BBB+' and revised the Outlook to Stable from Negative on 31 January 2013. See "Fitch Affirms ESB's IDR at 'BBB+'; Stable Outlook", dated 31 January 2013 at www.fitchratings.com.

Regulatory Review

The RWN continues to reflect the pending 'Transmission and Distribution Price Controls 2012-2017' (RP5) for NIE that could lead to a weaker standalone credit profile for NIE and hence a downgrade of its senior unsecured rating so that it does not exceed ESB's senior unsecured rating, even if NIE's IDR remains at 'BBB+' thanks to ESB's support.

The Utility Regulator in Northern Ireland (UReg) published the final determination (FD) for RP5 on 23 October 2012. NIE published its decision not to accept FD and UReg's proposed modifications to NIE's T&D licence on 20 November 2012. The current price control, RP4, has been further extended from 1 October to 31 December 2012.

Fitch expects UReg to confirm the timetable for referral to the Competition Commission (CC) in the coming weeks. The CC would consider submissions and evidence from all relevant parties and form a judgement. This process normally takes around six months from the date of referral, and Fitch would likely maintain the RWN until a final decision is available and NIE's new business plan is analysed.

Fitch placed NIE on RWN on 17 May 2012 and subsequently maintained the RWN on 16 November 2012. See "Fitch Maintains Northern Ireland Electricity's Senior Unsecured Rating on RWN", dated 16 November 2012 at www.fitchratings.com

LIQUIDITY

As at 30 September 2012, NIE had GBP40.5m in cash and cash equivalents and undrawn committed revolving credit facilities of GBP60m maturing in 2015, which are provided by its parent, ESB. This is sufficient to cover short term funding needs.

RATING SENSITIVITY GUIDANCE:

Negative: Future developments that could lead to negative rating action include:

- A downgrade of NIE's parent, ESB.

- A negative rating action on NIE's senior unsecured rating would be considered if forecast PMICR falls below 1.4x and/or leverage (net adjusted debt/regulatory asset base) rises above 57.5%, both on a sustained basis.

Positive: Future developments that could lead to positive rating actions include:

- A positive rating action on NIE's parent, ESB.

- A positive rating action (affirmation and removal of RWN) on NIE's senior unsecured rating would be considered if the decision by the CC on the FD together with NIE's new business plan for RP5 leads to comfortably stronger credit metrics than those indicated in the negative rating triggers.

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