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28 Nov 2006
Moody's maintains Iberdrola's A2/P-1 review for downgrade following bid for Scottish Power
London, 28 November 2006 -- Following the announcement that Iberdrola SA has made an offer to acquire
100% of the shares of Scottish Power Plc, Moody's Investors
Service maintains the existing review for possible downgrade on the A2/Prime-1
ratings of Iberdrola. The ratings of Iberdrola SA were first placed
on review in September 2005 in the context of Gas Natural's bid
for Endesa SA.
Iberdrola's offer for all the share capital of Scottish Power,
values the Scottish group's equity at approximately GBP11.6
billion (EUR17.1 billion). Under the proposed agreement,
Iberdrola will make a part-cash, part-share offer
at a total of 777 pence per share. The total cash price in the
transaction is GBP5.9 billion (EUR8.8 billion).
The offer is conditional on 75% shareholder acceptance, shareholder
approval of both companies -- including approvals to increase
the share capital of Iberdrola SA -- and regulatory approvals.
The acquisitions will be funded through a GBP8 billion syndicated credit
facility to cover the cash acquisition price plus potential partial debt
refinancing at Scottish Power Group.
Moody's said that if the acquisition were to be successful on the
terms outlined, the most likely outcome would be a long-term
A3 rating with stable outlook for Iberdrola with credit metrics that are
weakly positioned for this rating category. The short term rating
would be Prime-2 in this case. Moody's would expect
Iberdrola to exhibit a ratio of sustainable adjusted net debt to retained
cash flow in the range of 12-16% and FFO/gross interest
cover of at least 4x in order to support an A3 rating. Moody's
notes additionally that Iberdrola has expressed its commitment to maintains
a solid A3 rating in the context of this transaction.
Moody's added, however, that the rating outcome will
depend on a number of factors that are still uncertain at this early stage,
including the level of acceptances from shareholders and the final level
of debt. The potential A3 rating indicated does not assume any
notching for structural subordination at this point, as acquisition
debt is likely to be funded at the Iberdrola SA holding company level,
and Moody's expects that efforts will be made to reduce debt levels
within Scottish Power Group over time.
As part of the review of Iberdrola's ratings, Moody's
will take into account the expected weaker financial metrics as a result
of the transaction. Moody's will also factor a degree of
execution/integration risk given that Iberdrola will be moving substantially
outside its strong position in its domestic market -- the
principal source of its revenues -- into new markets,
primarily the UK and the US, with differing regulatory and competitive
This will bring exposure not only to very low-risk regulated UK
operations but also to the higher-risk UK generation and supply
sectors. Additionally, Iberdrola will significantly increase
opportunities for growth in the possibly more challenging, international
renewables business, to supplement similar investments in its domestic
market. Moody's, however, recognises that a broader
portfolio of businesses will bring a greater diversity of revenue streams
to Iberdrola, diluting its exposure to Latin America, as well
as creating a group with significant scale and some potential for modest
Moody's would expect to conclude the review of all the ratings when
and if the transaction is finalised, which Iberdrola estimates to
be in April 2007.
Moody's expects to issue a separate press release shortly on the
Scottish Power group.
The A2 ratings of Iberdrola SA were first placed on review in September
2005 following Gas Natural's bid for Endesa SA. As part of
this offer there was an agreement with Iberdrola to buy EUR7-9
billion of assets if the bid were successful. Moody's indication
of the likely rating impact of the Scottish Power transaction does not
take into account any acquisition of Endesa assets in the now increasingly
unlikely event that a bid by Gas Natural for Endesa will be successful.
The following Iberdrola ratings and debt securities (currently A2 long-term
and Prime-1 short-term) remain on review for possible downgrade:
- All issuance by Iberdrola Finanzas SAU and Iberdrola International
BV under the EUR6 billion EMTN programme, guaranteed by Iberdrola
- All issuance by Iberdrola International BV under the EUR1 billion
ECP programme guaranteed by Iberdrola SA;
- All other unsecured debt issuance;
- Senior unsecured issuer rating
Iberdrola SA, based in Madrid, is Spain's second largest
vertically integrated utility. As at FYE 2005, the company
had revenues of EUR11.7 billion.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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