Sharechat Logo

Parent troubles puts pressure on Contact's credit rating


Tuesday 26th November 2002

Text too small?
Contact Energy's standing with credit ratings agency Standard & Poor's is being reviewed with negative implications.

Contact's triple B-plus and A2 credit ratings are under scrutiny after the ratings of its major stakeholder Edison Mission Energy (EME) were lowered with a negative outlook.

EME holds 51 percent of Contact Energy.

"The resolution of the creditwatch will be determined by the extent to which Contact Energy improves the level of ring fencing of the company from EME," S&P spokesman Mark Legge said.

The ratings action on EME follows a series of events and market developments that have materially weakened the company's credit profile.

In October, financing covenants triggered cash traps of distributions from EME's largest subsidiary, Edison Mission Midwest Holdings Co and its affiliates.

Interest payments at the Midwest holdings company have increased, and operating margins are under pressure in the US and Britain where power markets are depressed.

The cash trap is restricting EME's ability to continue reducing its debt.

Contact Energy, which has a foot in both electricity and gas sectors, has a stronger rating than EME because, among other reasons, minorities hold a large percentage of Contact shares .

Contact also scores well because of a high level of transparency required by the Stock Exchange and its tough shareholder approval process, its independent directors and its relatively small scale compared with the EME group.

S&P noted EME had a track record of trying to protect its credit rating by selling its subsidiaries, rather than upstreaming cash.

Any change in Contact Energy's financial policy that could result in less cash being retained at the company would put downward pressure on its rating, Mr Legge said.

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
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:

UPDATE Contact increases dividend as FY earnings rise; quits wind projects
Contact increases dividend as FY earnings rise in competitive market
Contact shares drop to 2-month low, says 'hard to see' investment under Labour-Greens plan
Contact Energy, parent Origin mull redemption of $2.03 bln of notes after S and P change
Solid first half for Contact, despite retail margins squeeze
Contact sells mothballed New Plymouth power station for $24 mln
Contact Energy's King hints at greater returns as cash mounts
Contact energy beats FY profit forecast as revenue surges
Elliott leaving Contact for Origin role
Contact sees 2014 cash-flow boost as projects put on ice