(The following statement was released by the rating agency)
March 15 - Fitch Ratings has affirmed Germany's HSE Netz AG
(HSE Netz) Long-term Issuer Default Rating (IDR) at 'BBB-' with a Stable Outlook
and senior unsecured rating at 'BBB'.
The affirmation is driven by the company's successful refinancing, completed
with a EUR320m placement of 30-year bonds in April 2011. The key credit features
of the bond issue, including structural enhancements such as debt service
reserve liquidity and covenants, were in line with Fitch's expectations at the
assignment of the bond's rating.
As a result of the increased debt, HSE Netz's credit metrics are expected to
have deteriorated moderately at YE11 but forecast FFO net leverage remains in
the range of 6x-7x and interest cover at 2.3x-2.7x (corresponding to a
post-maintenance interest coverage ratio (PMICR) around 1.3x-1.6x and regulatory
gearing of around 60%).
Some court cases that appealed single aspects of the tariff settlement indicate
that there could be positive movements for network companies in the medium term.
However, at this stage there is little transparency around the possible impact
on HSE Netz. Reliable information may only be available following the conclusion
of the next price control settlements.
The IDR continues to reflect the unchanged combined risk profile of HSE Netz and
its operating subsidiary Verteilnetzbetreiber (VNB) Rhein-Main-Neckar GmbH & Co.
KG. This is characterised by its regional monopoly position in electricity and
gas distribution, and its defensive qualities, including non-cyclical and
inflexible demand. The operating business in FY11 performed in line with
expectations. The regulated business activity is based on diversified long-term
grid concessions with the renewal risk shifted to 2025-2028 and is mitigated
through successful past extensions.
The 'BBB' senior unsecured rating incorporates a one-notch uplift from HSE
Netz's IDR, reflecting Fitch's expectation of above-average recovery prospects
for debt issued by European regulated utilities.
As HSE Netz does not have any available credit lines, for liquidity the company
relies on prudent planning of monthly cash management as part of the ordinary
treasury function. At YE11, the company had a cash balance of EUR89.6m but
almost the entire amount was held as reserves (EUR16.5m as debt service reserve
with the remainder held against contingent liabilities) established in line with
bond documentation requirements.
(Caryn Trokie, New York Ratings Unit)