Sharechat Logo

Chorus BBB debt rating affirmed by S&P, outlook negative on reduced headroom

Friday 23rd May 2014

Text too small?

 

Chorus's BBB credit rating was affirmed by Standard & Poor's with a negative outlook that reflects prospects for the network company's 'headroom' within financial covenants to shrink as it ramps up spending on the Ultra-Fast Broadband network and regulated prices fall.

 

 

The Wellington-based company was placed on creditwatch with negative implications in February, effectively giving it three months to convince S&P not to downgrade its credit rating.

 

 

"The rating affirmation reflects our view that Chorus has sufficient flexibility under a range of proposed revenue, cost, and capital management initiatives to temper the impact of reduced network pricing from December 2014 and maintain a financial risk profile consistent with the 'BBB' rating," credit analyst Paul Draffin said in a statement. "The negative outlook reflects the potential for the group’s headroom within bank facility financial covenants to materially diminish over the next few years."

 

 

Last year the Commerce Commission proposed cutting the network operator’s pricing on its copper line services, which Chorus said left a $1 billion hole in the funding for the roll out of the government-sponsored UFB.

 

 

In March, Crown Fibre Holdings gave Chorus greater flexibility in building the network provided it meets the agreed deadline, and has aligned funding with completed work.

 

 

Chorus is working through plans to cut costs and dividend cuts, raise capital, and renegotiate terms of its UFB contract, and has challenged the regulator in the Court of Appeal.

 

 

In January, Moody’s Investors Service’s downgraded Chorus to Baa3 from Baa2, the lowest possible investment grade rating.

 

 

Draffin said the Commerce Commission's review of its pricing methodology, with an outcome expected in April 2015, may result in more modest price cuts being imposed on Chorus but the ratings company's base case assumes no change and "significant uncertainty remains regarding the outcomes of this process."

 

 

"The negative outlook reflects our view that the rating could be lowered in the next six to 12 months due to the potential reduction in forecast covenant headroom during the peak of the UFB construction process; or if management’s strategies to support its financial risk profile are insufficient to maintain debt to Ebitda below 4" times.

 

 

Chorus shares fell 0.6 percent to $1.70 and have gained 19 percent this year.

 

 

 

 

BusinessDesk.co.nz



  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

SML - Synlait Milk Limited - Trading Halt of Securities
AIA - Auckland Airport announces board chair changes
AIA - Auckland Airport announces board chair changes
CEN - Tauhara commissioning progress update
FPH initiates voluntary limited recall
March 28th Morning Report
KFL Celebrates 20 Years of Excellence in Investment Mgmt.
SVR - Savor FY24 Earnings Guidance & Change in Banking Partner
NZK - NZ King Salmon Investments Limited FY24 Results
March 27th Morning Report