Standard & Poor's Ratings Services has lowered its corporate credit ratings on electricity retailer Synergy following adoption of a new rating methodology.
Standard & Poor's Ratings Services has lowered its corporate credit ratings on electricity retailer Synergy following adoption of a new rating methodology.
The announcement is below:
Synergy Ratings Lowered To 'A+/A-1' On Revised Methodology For Government-Related Entities; Outlook Stable
Melbourne, July 2, 2009 -- Standard & Poor's Ratings Services said today that it had lowered its corporate credit ratings on state-owned utility Synergy to 'A+/A-1', from 'AA-/A-1+'. At the same time, we removed the ratings from CreditWatch with negative implications, where they were placed on June 30, 2009. The outlook is stable. The downgrade follows application of our revised methodology and assumptions for rating government-related entities to Synergy's stand-alone credit profile (see "Enhanced Methodology And Assumptions For Rating Government-Related Entities," published to RatingsDirect on June 29, 2009). Synergy's stand-alone credit profile remains 'BBB'.
"The ratings on Synergy reflect our opinion that there is a very high likelihood that the state of Western Australia (AAA/Stable/A-1+) would provide timely and sufficient extraordinary support to Synergy in the event of financial distress," Standard & Poor's credit analyst Danielle Westwater said. "Also underpinning the ratings is Synergy's strong business risk profile and significant financial risk profile."
Synergy's strong business profile is supported by its short-term revenue reliability, which is derived from supportive vesting contracts, and the company's strong competitive position in the state's South West Interconnected System (SWIS). These strengths are partly offset by the changing market dynamics, which will expose Synergy to increased market and financial risks over time; the lack of clarity on Synergy's long-term capital structure and wholesale risk policies; and the company's exposure to operational risk as it transitions to its new information technology systems for full retail contestability (FRC).
"If the level of supply from vesting contracts diminishes below our expected range through execution of additional power purchase agreements (PPAs) or the government intervenes to further drive competition through additional vesting contract displacement, pressure on Synergy's stand-alone credit profile is likely to occur, which in turn could put pressure on the ratings," added Ms. Westwater.
