Moody's one-notch downgrade of EDA's rating to B1 reflects the increased refinancing risk associated with the company's approaching debt maturities. These maturities mainly include a EUR50 million bond due in Q3 2013 and a EUR20 million commercial paper (CP) programme maturing in Q4 2013. Whilst Moody's notes that EDA has recently concluded a new CP programme of EUR25 million, thus reducing refinancing needs, the company's 2013 maturities are not fully covered and remain relatively sizeable in the context of its debt profile. In addition, EDA will have to continue to renew short-term lines (currently totalling EUR39.5 million) to ensure an adequate liquidity profile.
In addition to the 2013 maturities, EDA has material funding needs in 2014, including the refinancing of EUR40 million of CP programmes, which have however been renewed in the past, and a second bond amounting to EUR50 million. Thus, Moody's downgrade of EDA's rating reflects the increased risk to the company's financial profile resulting from its sizeable refinancing requirements, particularly in the context of the current macroeconomic and financial pressures in Portugal.
The downgrade of EDA's rating also reflects delays in payment to the company of outstanding receivables, which is constraining its liquidity profile. More specifically, Moody's notes the continued delays in the repayment of overdue amounts by the Portuguese government, totalling approximately EUR41 million. In Moody's view, the pressures at the sovereign level reduce visibility in respect of the timing and likelihood of the repayment of these amounts. The constrained sovereign situation is also causing delays in the context of the finalisation of a new EUR80 million EIB loan for EDA, for which the company is providing a Portuguese government guarantee.
The continuing review for downgrade of EDA's rating reflects the risks associated with the company's approaching debt maturities in the context of the challenging macroeconomic and financial conditions resulting from sovereign pressures. The review will focus on the company's plans to remedy this situation, and the progress in achieving this.
WHAT COULD CHANGE THE RATING UP/DOWN
Given the continued review for downgrade, Moody's does not expect upward rating pressure in the short-term. Moody's would confirm EDA's rating at current levels if the company were able to strengthen its liquidity position and reduce its refinancing risk, as a result of finalising new long-term lines, extending existing facilities and/or reducing the amount of its overdue receivables.
Moody's would consider a further downgrade of EDA's rating if the company makes no near-term progress in executing a plan for refinancing its 2013 debt maturities.
The principal methodology used in this rating was Regulated Electric and Gas Utilities published in August 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
EDA is the dominant vertically integrated utility in Azores. As of December 2011, the company reported revenues of EUR214 million, operating profit of EUR27 million and gross debt of EUR325 million.
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