London, 20 May 2010 -- Moody's Investors Service has today affirmed all ratings for National
Grid Plc ("National Grid") and its rated subsidiaries (see list below)
following the company's announcement of its preliminary results
for 2009/10, new capital investment programme and rights issue to
raise GBP3.2 billion. The outlook on all ratings is stable.
The preliminary results for 2009/10 show solid performance by the group's
UK operations with significant increases in operating profits for the
regulated businesses driven by higher revenues due to RPI inflation during
2008 and incentive payments. There was also growth in the non-regulated
activities due to again inflationary increases and as a result of Phase
II of the Grain LNG business being operational for a full year.
Higher operating profit from the US transmission and electricity distribution
and generation businesses was offset by a GBP177 million reduction in
regulated US gas income largely due to timing and a one off Long Island
property tax recovery item.
The announced results are, as expected, materially better
than those for 2008/09 and key credit metrics for 2009/10 are likely to
be comfortably above Moody's minimum guidance for the existing ratings
(RCF/Net Debt to exceed 9% and FFO Interest Cover of 3.0x
or better). However, Moody's notes that the current financial
year is likely to pose a greater challenge for National Grid. Low
inflation/deflation in the UK during 2009 means that there will be only
a modest increase in revenues for the regulated businesses whilst currently
high RPI inflation may lead to higher costs. Moody's expects
that higher revenues from agreed and to be agreed US rate cases will support
earnings but notes that the group is vulnerable to one-off items
and timing issues As has been seen, the outcome of rate cases can
fall short of company expectations and Moody's notes that cases
for 35% of the rate base have yet to be settled (NMPC Electric
and Massachusetts Gas).
Moody's notes that National Grid intends to maintain its dividend
policy of 8% per annum growth until March 2012. This is
consistent with the group's policy in recent years of substantial
dividend growth, which, in Moody's opinion, has
strained the balance sheet when there has also been a large ongoing investment
programme and has not been adequately supported by the underlying performance
of the business, to the detriment of its credit quality.
The announced rights issue will strengthen National Grid's balance
sheet and provide financial flexibility to pursue the proposed capital
investment programme whilst establishing a degree of headroom in the current
rating categories that has been lacking in recent years. Moody's
notes, however, that the headroom will be limited, insufficient
to support a significant further expansion in the investment programme
or a material acquisition. The headroom may also be eroded over
time by, for example, dividend payments.
The following ratings, each with a stable outlook, are affirmed
(ratings quoted are the long-term senior unsecured issuer and/or
debt ratings, unless otherwise stated):
- National Grid Plc (Baa1)
- National Grid Gas Plc (A3)
- British Transco Finance Inc. (A3)
- British Transco International Finance B.V. (A3)
- British Transco Capital Inc. (Prime-2 short-term)
- National Grid Electricity Transmission Plc (A3)
- NGG Finance Plc (Baa1)
- National Grid USA (A3)
- Massachusetts Electric Company (A3)
- Narragansett Electric Company (A3)
- New England Power Company (A3)
- Niagara Mohawk Power Corporation (A3)
- KeySpan Corporation (Baa1)
- Boston Gas Company (Baa1)
- Colonial Gas Company (A1 senior secured)
- Brooklyn Union Gas Company (A3)
- National Grid Generation LLC (formerly KeySpan Generation LLC)
(Baa1)
- KeySpan Trust I ((P)Baa2 preferred shelf)
- KeySpan Trust II ((P)Baa2 preferred shelf)
- KeySpan Trust III ((P)Baa2 preferred shelf)
Moody's previous rating actions affecting a number of entities in the
National Grid group were implemented on 20 July 2009, when Moody's
affirmed the ratings and changed the outlook to stable from negative.
The principal methodology used in rating National Grid is Moody's
methodology for Regulated Electric and Gas Utilities published in August
2009 which is available at www.moodys.com in the Rating
Methodologies sub-directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Headquartered in London, England, National Grid Plc is the
holding company for a range of international businesses focusing on the
ownership and operation of electricity and gas networks. Its two
principal geographic areas of activity are the UK and the US. In
the financial year ending on 31 March 2010, National Grid reported
revenues of approximately GBP14.0 billion.
London
Neil Griffiths-Lambeth
VP - Senior Credit Officer
Infrastructure Finance
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Monica Merli
Managing Director
Infrastructure Finance
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's affirms National Grid's ratings