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09 Dec 2009
Prague, December 09, 2009 -- Moody's Investors Service has today assigned an Aa3 long-term senior
unsecured issuer ratings to Enexis Holding N.V. ("Enexis")
and its fully owned operating subsidiary Enexis B.V..
This is the first time that Moody's has assigned a rating to both
companies. The outlook for the rating is stable.
The Aa3 rating assigned to Enexis and its subsidiary, which represents
99% of group assets, reflects a combination of (i) low risk
business profile of its domestic electricity and gas regulated distribution
network operations, which generate over 90% of the group's
earnings and cash flows, (ii) well defined, transparent,
but strongly cost efficient-oriented Dutch regulatory framework,
(iii) conservative financial profile reflected by strengthened capital
structure and very solid liquidity position and (iv) a two-notch
uplift for potential support from its owners.
The low business risk profile reflects Enexis' strategic focus on
core regulated activities based on fully owned distribution network assets.
In Moody's view, a well defined, transparent and cost
efficient-oriented Dutch regulatory framework allows network companies
to earn an adequate return on their regulated asset base. The inflation
and efficiency gain (CPI-X) adjusted revenue cap-based regulation
eliminates exposure to volume risk, providing a stabilising factor
to Enexis' financial performance.
In its assessment of Enexis, Moody's incorporated the expected
positive impact of the measures taken by the company's owners and
management that occurred during the unbundling process implemented during
2009 to separate Enexis from the Essent group, whose unregulated
operations were sold to RWE. As a result the capital structure
and liquidity position of the company significantly strengthened,
mainly due to: (i) an equity injection of EUR350 million provided
by the owners; (ii) the use of proceeds from the sale of the company's
high voltage grid to the transmission operator TenneT TSO to decrease
leverage; (iii) the favourable maturity of the EUR1,800 million
long-term shareholder loan, with the possibility to convert
the EUR350 million tranche with the longest maturity into equity in case
the minimum ratios required by the regulator are jeopardised; (iv)
the successful arrangement of a EUR550 million back-up revolving
credit facility that further strengthens Enexis' liquidity position;
and (v) the successful termination of the majority of the cross-border
lease agreements, thereby eliminating significant financial exposure.
"Following the measures taken during the unbundling process,
Moody's expects Enexis' credit metrics to strengthen"
notes Richard Miratsky, VP - Senior Analyst at Moody's
Infrastructure Finance Team. "If Enexis comfortably exceeds
on a consistent and sustainable basis the credit metrics established within
its financial policy (FFO Interest coverage above 4x and FFO/Net Debt
above 20%), the current rating might come under positive
pressure in the medium term" adds Richard Miratsky. To remain
safely positioned within the current rating category, Moody's
would expect Enexis to achieve on sustainable basis credit metrics commensurate
with FFO Interest coverage at or above 3.5x and FFO/Net Debt above
15%. If the debt protection metrics decline substantially
below these levels, mainly as a result of an increase in leverage
significantly above the forecast levels or a weakening of cash flow generation
due to an increase in operating expenses, the rating might come
under downward pressure.
Enexis' current strong liquidity position is supported by solid
cash flow generation, a favourable maturity profile of the long-term
shareholder loan, and sizeable headroom under the newly negotiated
back-up credit facility. The capex plan, which represents
major cash outflows and is forecast to gradually grow within the next
five years from the current EUR300 million, is expected to be fully
covered from the company's own-generated cash flows.
The very solid liquidity position is further supported by the company's
dividend policy that was outlined by the shareholders at 30% of
net income until 2010 and 50% thereafter.
The structure of the shareholder loan, provided to Enexis Holding
N.V. through an SPV fully owned by shareholders, was
on-lent to the operating company (Enexis B.V.) via
an intra-company loan under substantially and materially the same
terms as the shareholder loan. Although the EUR550 million revolving
overdraft facility, arranged with a pool of local and international
banks, is provided directly to Enexis B.V. (operating
company), and future bond issuances, aimed at refinancing
the shareholder loans at maturity, are planned to be issued at the
holding company level (Enexis Holding N.V.), Moody's
does not notch down Enexis' rating for structural subordination.
Moody's expects the currently un-drawn overdraft credit line
to be utilised mainly as a back-up facility to balance seasonal
swings in working capital needs. Furthermore, Moody's
expects the intra-company loan between the holding and the subsidiary
to remain an integral part of the group's financial policy.
However, if additional external financing were to be arranged in
the future directly at the Enexis B.V. level without suitably
mitigating arrangements, which Moody's understands is not
the management's intention, Moody's view on structural
subordination would need to be reconsidered.
Given its 100% ownership by Dutch provinces and municipalities,
Enexis falls within the scope of Moody's rating methodology for government-related
issuers (GRIs). In accordance with the methodology, Enexis'
rating incorporates uplift for potential support from its owners to its
standalone credit quality. This is expressed by Moody's as a Baseline
Credit Assessment (BCA) of 6 (on a scale of 1 to 21, where 1 represents
the lowest risk and 6 is equivalent to an A2). Although the ownership
is relatively fragmented among approximately 140 provinces and municipalities,
Moody's perceives the shareholders' ability to act in conjunction
with one another as relatively high, considering that the four largest
provinces together have over a 70% ownership share. Furthermore,
the medium level of support incorporates Moody's view that the legal
and political mechanisms established in Netherlands, including the
legal requirement of public ownership of energy network assets,
increases the probability of systemic support to strategically important
network operators in case of extraordinary need. In addition to
the medium probability of systemic support, the two-notch
uplift from the BCA further incorporates Moody's assessment of credit
quality of Enexis' shareholders, as well as high medium dependence
based on exposure of Enexis' and its owners to common drivers of
credit quality considering that Enexis derives almost all of its revenues
The principal methodologies used in rating Enexis were Moody's Regulated
Electric and Gas Networks, published in August 2009 and "The Application
of Joint Default Analysis to Government Related Issuers", published
in April 2005. These methodologies are available on 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 Rosmalen, Netherlands, Enexis is the owner
and operator of approximately one third of Netherland's electricity
and gas distribution network with EUR1,342 million revenues generated
in the year ended December 2008.
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns Aa3 issuer ratings to Enexis Holding N.V.and Enexis B.V.; stable outlook
Vice President - Senior Analyst
Moody's Central Europe
No Related Data.
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