TEXT-Fitch release on Western Power Distribution Group
(The following statement was released by the rating agency)
May 9 - Fitch Ratings has today revised the Outlooks for the Long-term Issuer Default ratings (IDRs) of the UK's Western Power Distribution Holdings Ltd ("WPDH"), Western Power Distribution LLP ("LLP"), Western Power Distribution (South West) plc ("South West") and Western Power Distribution (South Wales) plc ("South Wales") to Positive from Stable.
A full list of the ratings is detailed below. WPDH and LLP are holding companies for South West and South Wales, which are regulated, monopoly electricity distribution businesses ("DNOs"). The group is wholly owned by PPL Corporation ('BBB'/Stable Outlook).
Fitch acknowledges the group's improved financial metrics at this stage in the five-year price control period, which, if maintained, could result in the ratings being upgraded.
However, Fitch expects to resolve the Positive Outlooks after Ofgem releases the final proposals for the Distribution Price Control 5 ("DPCR5") due in November 2009 and management confirms that their strategy for the group entities' financial profiles maintain the existing improvements achieved.
While Ofgem's DPCR5 may reduce some of the existing headroom in key credit metrics and reduce the financial benefits of existing outperformance, Fitch expects that the credit profile during the next quinquennium could be commensurate with a prospective higher rating.
In line with management's plans, leverage (as measured by net debt/regulatory asset value ("RAV")) has decreased and interest cover metrics have improved over the past two years as high-coupon debt has been refinanced with lower coupon, including index-linked, long-dated debt.
Fitch calculates WPDH's YE07 (to March 2007) consolidated net debt/RAV gearing ratio as 76%, and for the two DNOs, South West and South Wales, 39% and 55%, respectively.
The ratings are: WPDH: Long-term IDR: 'BBB-' (BBB minus); Outlook changed to Positive from Stable LLP: Long-term IDR'BBB'; Outlook changed to Positive from Stable South West: Long-term IDR 'BBB+'; Outlook changed to Positive from Stable Short-term IDR: 'F2' South Wales: Long-term IDR: 'BBB+'; Outlook changed to Positive from Stable Short-term IDR: 'F2' Continued...
