Approximately USD980 million of debt affected
Milan, December 16, 2010 -- Moody's Investors Service has today downgraded to Aa2 from Aa1 the
long-term issuer rating and senior unsecured ratings of Norges
Statsbaner AS ("NSB"). Concurrently, the rating
agency has affirmed the company's Prime-1 (P-1) short-term
rating. The outlook on the ratings is stable. This rating
action concludes the review for downgrade initiated by Moody's on
28 July 2010.
"This rating action was triggered by Moody's downgrade of
NSB's baseline credit assessment (BCA) to 6 (equivalent to A2) from
5 (equivalent to A1), which reflects both the poor performance posted
by the company in the past two years and Moody's expectation that,
in the medium term, NSB will be unable to restore credit metrics
that are compatible with a BCA of 5," says Marco Vetulli,
a Moody's Vice President-Senior Credit Officer and lead analyst
Moody's Aa2 ratings for NSB reflect a combination of the following
- A BCA of 6 (on a scale of 1 to 21, where 1 represents the
lowest credit risk and 6 equates to A2)
- The Government of Norway's sovereign rating of Aaa with
- The very high default dependence of NSB on its sole shareholder
(Government of Norway)
- The high likelihood of extraordinary government support.
The very high default dependence of NSB on the Norwegian government reflects:
(i) the very high level of operational and financial links between NSB
and its sole shareholder, evidenced by the fact that approximately
35% of the company's revenues are represented by direct government
subsidies (not taking into consideration the indirect subsidies arising
from the exemption from paying network access fees granted to NSB's
passenger rail division); and (ii) the high degree of overlap of
revenue base between NSB and its sole shareholder, as both entities
generate most of their income in Norway.
Moody's assessment of a high probability of support for NSB from
the Norwegian government is based on: (i) NSB's 100%
ownership by the Kingdom of Norway; (ii) its position as the country's
dominant passenger and freight train operator; (iii) government participation
in NSB's activities, through not only the appointment of all
the company's board members, but also the setting and following
up of its strategic goals; and (iv) the government's influence
over NSB's financial condition through the level of subsidies provided
to the company for its passenger transportation activities.
A BCA of 6 (A2-equivalent) reflects the following constraints:(i)
competitive pressures exerted on NSB's small domestic freight franchise
by strong global freight players; (ii) the current railway infrastructure,
which limits the growth of NSB's rail services (especially rail
passenger services); (iii) the limited dimension of the company in
respect to other European railways companies; and (iv) NSB's
increasing leverage following its implementation of its current capital
However, more positively, the BCA of 6 also reflects:
(i) Moody's expectation that NSB's financial performance and
liquidity will continue to be supported by a stable stream of revenues
from public procurements (around 35% of passenger traffic revenues
are derived from "public procurement") and indirect subsidies;
(ii) the rating agency's expectation that, over the coming
years, private competitors will not gain market share that is substantial
enough to lead to a major weakening of NSB's role in the provision
of public transport services in Norway; and (iii) significant hidden
reserves in the company's real estate assets.
The stable outlook reflects Moody's view that NSB's financial
profile and credit metrics are well positioned in the Aa2 rating category
and that its BCA is well positioned within the 6 (A2) rating scale.
The stable outlook is predicated on Moody's assumption that NSB
will be able to negotiate with the government a management contract for
the period 2011-2015 on a timely basis and this contract will foresee
public purchases contribution in line with the increasing production volumes
that the company has built up over the last few years. The stable
outlook is also predicated on the expectation of an improvement in credit
metrics through 2011.
Moreover, the stable outlook is also in line with the stable outlook
of the sovereign's ratings. At this point, Moody's
does not expect any change in dependence or support levels for the company.
Upward rating pressure could be driven by a change in NSB's BCA
to 5 from 6, as evidenced by a sustainable improvement in operating
performance and credit metrics, inter alia, a debt/EBITDA
ratio below 4.5x and an RCF/net debt ratio in the high teens.
Negative rating pressure could arise from a weakening of NSB's BCA
to 7 from 6, which could come about if NSB were to exhibit by the
end of 2011 credit metrics with, inter alia, a debt/EBITDA
ratio above 5.5x and a retained cash flow (RCF)/net debt ratio
below the low teens. Moody's could also adjust NSB's
BCA downwards if concerns about liquidity were to arise. A further
downgrade of NSB's issuer rating level could be triggered by a downgrade
of Norway (which is, at this point, unlikely in the medium
term) and/or a perceived weakening in the close links between NSB and
its sole shareholder.
Moody's most recent rating action on NSB was implemented on 28 July
2010, when the rating agency placed on review for possible downgrade
the company's Aa1 issuer rating. Concurrently, Moody's
affirmed the company's (P)1 short-term rating.
The principal methodologies used in this rating were Global Passenger
Railway Companies published in December 2008, and Government-Related
Issuers: Methodology Update published in July 2010.
NSB is one of the largest Norwegian transportation companies. Its
parent company is 100% owned by the State of Norway and is responsible
for train operation (both passenger and freight transportation) as well
as management of railway stations and rolling stock. NSB reported
operating revenues of approximately NOK11.1 billion (USD1.76
billion) as of the end of August 2010 on a last-12-months
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
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on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
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Please see ratings tab on the issuer/entity page on Moodys.com
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VP - Senior Credit Officer
Corporate Finance Group
Moody's Italia S.r.l
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
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Moody's downgrades Norges Statsbaner AS to Aa2; outlook stable -- (Norway)
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