Moody's downgrades long term debt rating on senior debt of British Gas plc to A1 from Aa2.
London, 09-18-95 -- Moody's Investors Service has downgraded the long-term senior debt ratings of British Gas plc, and its subsidiary debt guaranteed by the parent, to A1 from Aa2, and assigned a stable outlook to the rating. The rating agency said that the Prime-1 rating is not affected. This rating action concludes a review initiated on March 30, 1995.
Moody's said that while British Gas has substantial financial and business strength, the downgrade reflects forces unleashed by deregulation of the UK gas market, uncertainty with respect to its regulatory environment, and British Gas' continuing diversification into exploration and production (E&P).
Moody's said that British Gas has substantial business and financial strength and will remain a dominant force in the UK gas industry. The recent disposal of international assets has led to a significant improvement in British Gas' financial position. Moreover the monopoly transmission and distribution business (T&D) will provide a stable platform of cash flow and earnings. Additionally, British Gas' own restructuring and added efficiency will add greatly to the contribution from these businesses.
However Moody's said that as part of deregulation a substantial contractual cost of gas and take-or-pay obligation could develop for British Gas which would have a material impact on British Gas' financial position and investment plans. At this time it remains to be seen how the costs of deregulation are to be met; from British Gas plc alone, producers, UK taxpayers or UK gas consumers. Protracted negotiations are expected with the outcome far from secure. Moody's said that there is a reasonable likelihood that British Gas will have to live up to its gas contract commitments. However, at the end of the 1990's, British Gas plans to export substantial volumes of gas through the proposed interconnector to the European continent thus easing its contractual take-or-pay position, although at present this strategy carries demand and price risk.
The rating agency also said that deregulation has added to bondholder risk as one consequence has been loss of vertical integration between E&P, T&D and supply. Regulatory determination has yet to be made of the future relationship between the E&P and T&D arms of British Gas, and Moody's said that introduction of ringfencing measures could lead to the E&P business operating with elements of stand alone risk.
Downgraded issues are:
British Gas plc Eurobonds and debt issuance under its Euro MTN program
British Gas Finance Inc guaranteed Notes and Debentures
British Gas International Finance plc guaranteed Eurobonds
British Gas International Finance BV guaranteed Euronotes, Eurobonds and debt issuance under its Euro MTN program.
British Gas is the world's largest stand-alone natural gas company, involved in all aspects of the gas chain from exploration, production, gas transmission and distribution, and power generation. British Gas has its head office in London, England.
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