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Global Credit Research - 28 Jul 2010
Approximately US$1 billion of debt affected
Milan, July 28, 2010 -- Moody's Investors Service has today placed on review for possible downgrade
the Aa1 issuer rating of Norges Statsbaner AS (NSB). At the same
time, the rating agency has affirmed the Prime 1 short term rating
of the company.
This rating action is triggered by Moody's expectation that the
higher debt taken on to fund NSB's current capital investment program
and its declining margins are likely to affect NSB's credit metrics
going forward, and constrain its ability to maintain a financial
profile commensurate with its current Baseline Credit Assessment (BCA)
of 5 (A1).
Moody's review will mainly (but not exclusively) focus on the assessment
of: (i) NSB's willingness and ability to reduce the cost base
of all its business lines to cope with increased labour costs and the
expected debt increase from the implementation of its capital investment
plan (actual and expected); (ii) whether the remuneration level for
public services, which will be provided to NSB by the Norwegian
Government in the Management Contract for the period 2011- 2014
(currently under negotiation), will be enough to compensate the
Company for the investments implemented and planned, aimed at improving
its efficiency level; and (iii) the level of support provided by
Moody's aims to conclude its review process within three to six
months. If the outcome of the review process is a rating downgrade,
this would most likely be limited to one notch.
"Looking at NSB's performance during the first months of 2010,
Moody's expects its BCA to come under increasing pressure,
therefore Moody's review will focus on NSB's ability to restore
its position within the currently assigned rating category, "
says Marco Vetulli, Moody's VP Senior Credit Officer and lead
analyst for NSB.
In accordance with Moody's GRI rating methodology, the Aa1
issuer rating of NSB reflects the combination of the following inputs:
- A BCA of 5 (on a scale of 1 to 21, where 1 represents the
lowest level of credit risk and 5 equates to A1).
- The Aaa local currency rating for the Kingdom of Norway.
- The very high default dependence on its sole shareholder.
- The high likelihood of extraordinary government support.
The very high default dependence reflects Moody's assessment of
two main factors. Firstly, NSB has a very high level of operational
and financial linkage with its sole shareholder, as reflected by
the fact that approximately 25% of NSB's revenues comprise
direct government subsidies (not accounting for the indirect subsidies
from the exemption granted to NSB's passenger rail division from
paying network access fees). Secondly, there is a high degree
of overlap between NSB's revenue base and the revenue base of the
Moody's assessment of a high probability of support 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) the government's participation in NSB's
activities through the appointment of all its board members and in determining
its strategic goals and monitoring their implementation; and (iv)
the government's influence over NSB's financial condition
through the level of subsidies provided to it for its passenger transportation
Moody's notes that the government no longer guarantees the obligations
undertaken by NSB and it has substantially amended NSB's legal framework
to make it more comparable with a private corporation. The rating
agency understands that the privatisation of NSB is not likely in the
near or even medium term.
NSB's BCA of 5 (A1) is higher than the indication provided by Moody's
Global Passenger Railway Companies Rating Methodology (published in December
2008), which results in a 6 (A2) outcome on the basis of 2009 financial
NSB's BCA positively reflects Moody's expectation that,
although NSB finances new investments using private-sector debt,
its financial performance and liquidity will continue to be supported
by a stable revenue stream from public procurements (around 40%
of passenger traffic revenues are derived from "public procurement")
and indirect subsidies for the use of the track. NSB is not required
to pay access charges to Jernbaneverket, Norway's National
Railway Authority. The BCA also reflects Moody's view that,
over the coming years, private competitors will not gain enough
of a market share to weaken NSB's role of public transport services
in Norway. In addition NSB also has significant reserves in real-estate
The BCA also acknowledges the following constraints: (i) the significant
trend towards a declining market share of passenger rail transport on
long-distance routes compared with a growing trend in road/air
transport; (ii) competitive pressures on the small domestic freight
franchise from strong global freight players; (iii) the current railway
infrastructure, which is limiting NSB's growth in rail services
(especially rail passengers); (iv) NSB's limited size and reach;
and (v) the increasing leverage following the implementation of the current
capital investment program.
The last rating action on NSB was implemented on 27 April 2009,
when Moody's affirmed the company's Aa1 Issuer rating.
The principal methodologies utilised in rating NSB were "Government
Related Issuers: Methodology Update", published in July
2010, and "The Global Passenger Railway Companies Rating Methodology",
published in December 2008, both of which 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.
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 billion (US$1.7
billion) for the year ending 31 December 2009.
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Moody's places Norges Statsbaner's Aa1 issuer rating on review for possible downgrade
No Related Data.
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