ข่าวประชาสัมพันธ์การเงิน/หลักทรัพย์

Scotland Gas Networks And Southern Gas Networks ‘BBB+’ Ratings Affirmed On Increased Financing; Outlook Stable

          LONDON (S&P Global Ratings) Feb. 20, 2018--S&P Global Ratings today affirmed its 'BBB+' long-term issuer credit ratings on U.K.-based Scotia Gas Networks Ltd.'s two gas distribution networks, Scotland Gas Networks PLC and Southern Gas Networks PLC. The outlook is stable.
          At the same time, we affirmed our issue rating on Scotland Gas Networks PLC's and Southern Gas Networks PLC's senior unsecured debt at 'BBB+'. 
          The affirmation reflects the recent creation of SGN Midco Ltd. as a financing platform for the group, and the GBP125 million senior secured notes and GBP300 million private placement notes it issued. We base our rating on Scotia Gas Networks Ltd. on our assessment of the consolidated group, including the debt at SGN Midco, under our group rating methodology criteria. In our view, even though the group's incremental leverage increased, which we view as negative for the rating, the supportive structural features in the new SGN Midco platform mitigate this. In addition, we now treat the shareholder loan wholly as equity, which also supports the group's financial risk profile.
          The group comprises two operating companies (opcos), Scotland Gas Networks (BBB+/Stable/--) and Southern Gas Networks (BBB+/Stable/--); an intermediary holding company (holdco), SGN Midco; and various holdcos above this. The group's ultimate holdco is Scotia Gas Networks (topco). We refer to all these entities together as the group. SSE PLC has a 33% stake in topco and three other infrastructure funds have the remaining 67% stake. Topco has borrowed GBP533.6 million in shareholder notes, which are provided by all the owners in proportion to their equity stakes.
          Holdco creditors that rely solely on dividends from U.K. regulated utilities, like SGN Midco, face heightened cash-flow interruption risk as the rating approaches speculative-grade. This is because, according to the operating licenses, the U.K. utility regulators will restrict dividends and other payments out of the regulated operating subsidiary once the rating falls to 'BBB-' with either a negative outlook or a negative CreditWatch placement. We consider that the risk of regulatory cash lock-up for SGN Midco is partly mitigated by elements of structural protection, such as an intercreditor agreement, liquidity facilities, covenants, and a stand-still period.
          The rating also continues to reflect the group's excellent business risk profile, which benefits from the very low risk in the regulated utilities industry, low country risk for the U.K., and the strong regulatory advantage for the group's gas distribution network. In addition, we consider that the group's networks are very efficient and they are ranked first and fourth in terms of their customer satisfaction output scores. This will enhance a significant part of the group's incentive income going forward.
          The financial risk profile is somewhat constrained by the group's policy of maintaining relatively high financial leverage at the opcos at 70%-75% net debt to regulatory asset value (RAV), and the high leverage at SGN Midco, expected to be 80%-85% net debt to RAV. That said, we anticipate that S&P Global Ratings-adjusted funds from operations (FFO) to debt will be above 10% until the end of the regulatory period in 2021, which gives the group some headroom under its current 9% threshold for a rating of 'BBB+'. It has achieved this through continuous outperformance of the operating allowances set by its regulator Ofgem.
          The stable outlook reflects our view that the group will maintain a strong operational performance. We also assume that the consolidated group at the topco level--which is the focus of our analysis--will exhibit a stable financial profile. In particular, we anticipate that the group's adjusted FFO to debt will remain sustainably above 9%.
           We consider an upgrade unlikely in the near term. That said, we could consider raising the ratings if the group's financial profile improves significantly, for example, if adjusted FFO to debt comfortably exceeds 11% and financial policies become more moderate, resulting in leverage falling from the current levels.
          We could consider lowering the ratings if the group reports a weaker operating performance or reduced profitability, which could result from cost overruns, compared with regulatory assumptions. We could also consider a negative rating action if our forecast for the group's adjusted FFO-to-debt ratio falls below 9% over an extended period or if we saw a more aggressive shareholder attitude being evinced, for example, higher dividend pay-outs than we currently anticipate. We understand that dividend pay-outs are discretionary.