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Global Credit Research - 04 Feb 2011
Approximately EUR250 million of debt securities affected
London, 04 February 2011 -- Moody's Investors Service has today upgraded the issuer and debt ratings
of International Power plc ("IPR" or the "Company")
by three notches to Baa3 from Ba3, thereby concluding the review
that was initiated on 10 August 2010. The outlook on all ratings
is stable. The rating of the EUR250 million senior unsecured bonds
due to mature in 2017 was also upgraded by three notches to Baa3 from
Ba3. At the same time, Moody's has withdrawn IPR's
corporate family rating (CFR) in line with Moody's policy for credits
that transition from speculative grade to investment grade.
Today's rating upgrades were triggered by the recent completion
of GDF SUEZ's (rated A1, see separate press release) acquisition
of International Power plc, which was effected through the combination
of IPR and GDF SUEZ's Energy International Business Areas (outside
Europe) and certain assets in the UK and Turkey (collectively "GDF
SUEZ Energy International"). Under the terms of the combination
GDF SUEZ has acquired 70% of IPR by combining GDF SUEZ Energy International
with IPR in exchange for newly issued IPR shares. The transaction
also provides for the payment of a GBP1.4 billion special dividend
to IPR's existing shareholders, which is to be paid on 25
The key factors supporting Moody's upgrade of IPR's ratings
following the acquisition by GDF SUEZ, include: (i) the improved
consolidated financial metrics; (ii) the strategic fit between GDF
SUEZ Energy International and IPR's businesses, and the Company's
increased size; (iii) a more efficient capital structure, with
access to lower financing cost from the parent; (iv) stronger contractual
position and even higher diversification, and (v) implicit parental
support from GDF SUEZ.
The combination transforms IPR into the world's largest IPP group
by increasing its gross capacity from 34.4 GW to 66.2 GW,
and giving the Company an even wider geographical reach with access to
new markets such as Latin America. The senior unsecured issuer
rating also reflects IPR's material expansion schedule and its exposure
to high growth markets. IPR's GBP6.9 billion capex
programme consists of 22 GW of committed projects to be completed by 2013,
which will expand the Company's gross capacity by 33%.
In terms of EBITDA contribution, IPR will significantly increase
its high growth markets (Latin America, Middle East and Asia) exposure.
Moody's says that the senior unsecured issuer rating takes account
of the Company's committed capex plan. The rating could come
under downward pressure in the event of a very aggressive expansion over
and above the current committed pipeline, which would undermine
the expected improvement in financial metrics resulting from the combination.
Conversely, Moody's says that the rating could come under
upward pressure in the event of a shift towards a business with increased
cash flow generation potential and a moderate expansion programme.
The stable outlook on IPR's ratings reflects Moody's view
that the improvements in the company's financial profile are likely
to be maintained, with FFO/interest cover in excess of 5x,
an FFO/net debt ratio at 20% or above, and an RCF/net debt
ratio in the low teens at least.
Before the combination, IPR's financing was mainly based on
non-recourse debt at asset level. Going forward, the
Company will have the same financing policy as the one applied by GDF
SUEZ Energy International, whereby internal financing will be used
for controlled entities and merchant assets, and project financing
for non-merchant/PPA projects. However, the bulk of
the debt will still be held at asset or subsidiary level. Moody's
estimates that, upon completion of the merger, a limited amount
of the Company's total debt will be at holding company level.
The rating agency points out that this proportion would then be likely
to increase, albeit modestly, over time. Moody's
therefore continues to factor structural subordination into IPR's
senior unsecured rating.
Moody's has also factored into the rating the potential for parental
support from GDF SUEZ in light of its 70% controlling equity stake,
the strategic importance of IPR, which contributes significantly
to GDF SUEZ's EBITDA, and the financial commitment of GDF
SUEZ through loans from the parent. Moody's further understands
that all major investment plans or additional indebtedness at IPR are
to be approved by GDF SUEZ via its strong representation on the board
of IPR. In Moody's view, this additional level of control
should add to the stability and predictability of future cash flows or
The principal methodology used in this rating was "Global Unregulated
Utilities and Power Companies" published in August 2009.
IPR is a globally diversified power project holding company with a portfolio
of equity interests in electricity generation and associated assets.
It has 66.2GW of gross capacity (40.9GW net) across five
continents, with 22% of gross generation capacity in North
America, 20% in Europe, 22% in the Middle East,
16% in Latin America, 14% in Asia, and 6%
in Australia. IPR is FTSE-100 company that is listed on
the London Stock Exchange.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
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.
Moody's Investors Service may have provided Ancillary or Other Permissible
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three years preceding the Credit Rating Action. Please see the
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Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
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and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
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MD - Infrastructure Finance
Moody's Investors Service Ltd.
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Moody's Investors Service Ltd.
Moody's upgrades International Power to Baa3 from Ba3
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