Blog: Spark Infrastructure Trust — Moody’s downgrades Spark Infrastructure Trust to Baa2; outlook stable – Yahoo Finance

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Rating Action: Moody’s downgrades Spark Infrastructure Trust to Baa2; outlook stableGlobal Credit Research – 26 Apr 2021Sydney, April 26, 2021 — Moody’s Investors Service has today downgraded Spark Infrastructure Trust’s long-term issuer rating to Baa2 from Baa1.”IMPORTANT NOTICE: MOODY’S RATINGS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS. SUCH USE WOULD BE RECKLESS AND INAPPROPRIATE. SEE FULL DISCLAIMERS BELOW.”At the same time, the outlook has been changed to stable from negative.”The downgrade reflects our expectation that Spark Infrastructure’s look-through credit metrics will over time be more consistent with a Baa2 rating, due to a confluence of lower earnings following upcoming regulatory resets on its network investments, the commencement of tax payments and likely higher debt to fund growth projects,” says Nicholas Chapman, a Moody’s Vice President and Senior Analyst.Moody’s expects Spark Infrastructure’s consolidated (look through) financial leverage — as measured by funds from operations (FFO)/net debt — to weaken over time to below 11%, a range commensurate with a Baa2 rating.The change to a stable outlook incorporates Moody’s expectation that Spark Infrastructure’s capital structure will — following its weakening below 11% — be sustained at levels commensurate with a Baa2 rating and that the company will implement countermeasures to protect its credit profile under downside scenarios.RATINGS RATIONALEUnderpinning Spark Infrastructure’s Baa2 rating is the predictable nature of its distributions from its minority interests in a diversified portfolio of regulated electricity networks, which are essential to the electricity network and have low business risk and strong market positions. These networks are regulated under an established framework and have stable capital structures, further supporting the predictability of those distributions.Growth projects are arising from the accelerating transition in Australia’s electricity sector to renewable energy and include (1) those undertaken by its investee companies — such as TransGrid’s potential development of Project Energy Connect, a proposed electricity interconnector that runs between New South Wales and South Australia — as well as (2) direct investments in renewable energy assets, such as the Bomen Solar Farm.Whilst Spark Infrastructure’s metrics are currently strong when assessed on a standalone (headstock) basis due to the low level of drawn corporate debt, these metrics are likely to weaken as it funds these projects. Moody’s nevertheless expects Spark to fund projects in a manner that is consistent with the rating parameters.Moody’s consideration of Spark Infrastructure’s financial metrics on a consolidated, or look through basis, reflects the strategic importance of its investments, which raises the likelihood that it will support the underlying companies if they experience a financially challenging situation, even though their debt is limited recourse in nature.The rating also factors in the minority positions of Spark Infrastructure’s interests, which means that it cannot fully control the financial policies of these underlying companies. That said, Moody’s understands that Spark’s consent is required to change the distribution policies of these underlying companies; a situation that further tempers the risk of large step-changes in the distributions. Moreover, CK Infrastructure Holdings Limited, which owns the majority stakes in two of these underlying companies — SAPN and VPN — through various entities, has a track record of maintaining stable capital structures in its various rated subsidiaries.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGThe stable outlook reflects Spark Infrastructure’s predictable cash flow, solid operating track record and Moody’s expectation that the company’s shareholders will maintain a stable capital structure and implement timely countermeasures to protect its credit profile under downside scenarios.Spark infrastructure’s rating is unlikely to undergo an upward trend in the near term given the projected deterioration in its credit metrics. Over time, the rating could be upgraded if Spark Infrastructure’s financial profile improves sustainably, resulting in the FFO to debt rising above 11.5%, supported by a financial policy that is commensurate with a Baa1 capital structure.Moody’s could downgrade Spark Infrastructure’s rating if look-through FFO/debt is likely to fall below 9% on a sustained basis.Moody’s could also downgrade Spark Infrastructure’s rating if (1) cash flow distributions from its investments are at risk of a material and sustained reduction without a corresponding debt reduction; (2) corporate debt rises such that its headstock metrics weaken with FFO/net debt falling below 35%; and/or (3) merger and acquisition activity materially increases the company’s business risk.The principal methodology used in this rating was Regulated Electric and Gas Networks published in March 2017 and available at https://ift.tt/2QvIJ68. Alternatively, please see the Rating Methodologies page on http://www.moodys.com for a copy of this methodology.Spark Infrastructure Trust is an Australian Stock Exchange-listed infrastructure fund with (1) 49% shareholdings in SA Power Networks and Citipower and Powercor (Victoria Power Networks), (2) a 15.01% interest in TransGrid (the principal asset of the NSW Electricity Networks group and guarantor of debt raised by NSW Electricity Networks Finance Pty Limited, Baa2 stable) and (3) 100% ownership of the Bomen Solar Farm (120 megawatts) located in New South Wales.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://ift.tt/3r4KzHE ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on http://www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.This rating is solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ift.tt/349xDIr disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ift.tt/3cvzJX4 Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on http://www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on http://www.moodys.com.Please see http://www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on http://www.moodys.com for additional regulatory disclosures for each credit rating. Nicholas Chapman, CFA Vice President – Senior Analyst Project & Infrastructure Finance Moody’s Investors Service Pty. Ltd. 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