(The following statement was released by the rating agency)
LONDON, September 13 (Fitch) Fitch Ratings has affirmed Electricity North West
Limited's (ENW) Long-term Issuer Default Rating (IDR) at 'BBB+', senior
unsecured rating at 'A-', and Short-term IDR at 'F2'. It has also affirmed North
West Electricity Networks Ltd's (NWEN) Long-term IDR at 'BBB'. The Outlooks are
Stable. A full list of rating actions is below.
The affirmation reflects the constructive regulatory environment for the UK's
electricity distribution networks, providing cash flow stability and visibility
for the remainder of the regulatory price control period (DPCR5). It also
reflects outperformance of operational and regulatory output, and the group's
covenanted financing structure.
The Stable Outlook reflects ample liquidity to meet immediate funding needs, a
manageable DPCR5 capital spending programme, and the absence of material debt
maturities until 2015. However, there could be a potentially adverse impact from
the new price control from April 2015.
KEY RATING DRIVERS
Stable Regulatory & Operational Performance
ENW is one of the top second-quartile performers in terms of regulatory outputs.
For the year ending 31 March 2013 (FY13) the company reported scores of 49.2
(47.6 in FY12) for customer minutes lost and 46.1 (45.9 in FY12) for customer
interruptions. The slight deterioration in performance was due to the severe
weather conditions during 2012/13. The company is investing in this area to
improve performance over the remainder of the price control and beyond. We
expect ENW to continue to deliver capex and opex outperformance until the end of
the current regulatory period.
Upcoming Changes to Regulation
The Office of Gas and Electricity Markets' (Ofgem) published its framework
document for the new price control for electricity distribution in March 2013.
Under the RIIO-ED1 Strategy document, new asset depreciation lives will be
lengthened to 45 years under a straight-line basis in line with RIIO-T1
determination for electricity transmission, with negative cash flow implications
for the license holders. Weighted average cost of capital will incorporate an
IBOXX linkage, putting pressure on networks with large amounts of fixed debt,
including ENW. We expect that the new price control will be credit neutral for
an efficient operator, but there is scope for negative rating action and/or
rating guidance tightening to reflect the proposed cash flow impacts and
potential to underperform.
We do not yet have sufficient information to take a view of the impact of the
new price control from April 2015 on individual issuers including ENW and NWEN.
Adequate Credit Metrics
Fitch forecasts ENW's post-tax interest cover ratio (PMICR) at an average of
around 2.0x for the current price control to 31 March 2015 and leverage
calculated as net debt to regulatory asset value (RAV) at 63%. Forecast PMICR
for NWEN is expected to be around 1.7x and leverage at 83%. The credit metrics
reflect Fitch's conservative estimates of the company's outperformance of tax,
capital and operational expenditure and incentive revenue expected over the
current price control. However, PMICR levels are likely to fall for the next
Positive: We view the rating upside as limited. However, future developments
that may, individually or collectively, lead to positive rating action include:
-ENW: PMICR above 2x and a decline in RAV-based leverage below 60% on
-NWEN: An upgrade of its operating subsidiary, ENW, would support an upgrade
along with an improvement in PMICR above 1.6x and a decline in RAV-based
leverage below 75% on sustainable basis.
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
-ENW: PMICR below 1.6x and RAV-based leverage over 74% on a sustainable basis.
-NWEN: PMICR below 1.4x and RAV-based leverage over 84% on a sustainable basis.
- Regulatory changes under the new price control may result in tighter ratio
LIQUIDITY AND DEBT STRUCTURE
At 31 August 2013 the group had GBP84m in cash and cash equivalents and undrawn
committed facilities of GBP194m. ENW had GBP66m in cash and cash equivalents and
undrawn committed facilities of GBP50m which expire in 2016. NWEN had a GBP150m
capex facility maturing in 2016 of which GBP104m remain undrawn, as well as a
GBP40m undrawn liquidity facility renewable annually, for its 18-month
forward-looking debt service funding. There are no debt maturities at ENW or
NWEN until FY16. The group has sufficient liquidity to meet its operational &
financial needs for the remainder of the current price control.
FULL LIST OF RATING ACTIONS:
Electricity North West Limited
-Long-term IDR affirmed at 'BBB+', Stable Outlook
-Senior unsecured rating affirmed at 'A-'
-Short-term IDR affirmed at 'F2'
North West Electricity Networks Limited
-Long-term IDR affirmed at 'BBB', Stable Outlook
ENW Finance plc
Senior unsecured guaranteed notes affirmed at 'A-'
ENW Capital Finance plc
Senior secured guaranteed notes affirmed at 'BBB+'
Bonds issued by ENW Finance plc, a financing subsidiary of ENW, are for the
benefit of ENW and are guaranteed by ENW, and bonds issued by ENW Capital
Finance plc are guaranteed by NWEN, the immediate parent of ENW.
+44 20 3530 1419
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Fitch Ratings Limited
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London E14 5GN
+44 20 3530 1287
Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email:
Additional information is available on www.fitchratings.com. For regulatory
purposes in various jurisdictions, the supervisory analyst named above is deemed
to be the primary analyst for this issuer; the principal analyst is deemed to be
Applicable criteria, 'Corporate Rating Methodology', dated 05 August 2013, are
available at www.fitchratings.com.
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and
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