BUCHAREST (Romania), June 28 (SeeNews) - Moody's Investors Service downgraded Romania's Hidroelectrica long-term corporate family rating (CFR) and probability of default rating (PDR) to Caa1 from B2 with a negative outlook, Moody's said on Thursday.
On June 20 Moody's downgraded Romanian state-owned hydropower producer Hidroelectrica's CFR and PDR to B2 from Ba1.
There is no rated debt outstanding, the agency said in a statement, adding that following this rating action, all ratings will be withdrawn.
Moody's also said in a statement:
""The two-notch downgrade of Hidroelectrica's ratings to Caa1 follows the confirmation of the company's voluntary insolvency filing by the Bucharest Court on 20 June 2012," says Richard Miratsky, a Moody's Vice President -- Senior Analyst and lead analyst for Hidroelectrica. "The Caa1 rating reflects significantly increased payment default risk and the
inherent unpredictability of future developments under the insolvency proceedings," adds Mr. Miratsky.
However, the Caa1 rating also incorporates (1) Moody's view that the insolvency filing in this specific case does not constitute an immediate default by Hidroelectrica due to its primary focus on the company's reorganisation under judicial administration; (2) Moody's current expectation that Hidroelectrica will continue to service and repay debt on a timely basis at least in the short term; and (3) the rating agency's understanding that it is not intended that the completion of
the judicial process will result in a distressed exchange of Hidroelectrica's debt. Moody's expects that Hidroelectrica's financial position upon entering the insolvency process will be such that it could continue to meet debt service and repayment from its own resources over the short term.
Given its 80% ownership by the Government of Romania, Hidroelectrica falls within the scope of Moody's rating methodology for government-related issuers (GRIs). In accordance with this methodology, Hidroelectrica's rating incorporates an uplift for potential government support to its standalone credit quality, which is expressed as a baseline credit assessment (BCA). Moody's has lowered Hidroelectrica's BCA to 19 (equivalent to a Caa3 rating) from 17 (equivalent to a Caa1 rating) to reflect the elevated risk of default on the company's liabilities following its recent filing for insolvency.
The uplift to the BCA, at two notches, reflects Moody's view that the Government of Romania will monitor the progress of the judicial procedure and that the government would have a strong incentive to avoid a payment default by a government-owned enterprise, particularly one as strategically significant as Hidroelectrica. More technically, the final
rating reflects (1) the credit quality of Hidroelectrica's government shareholder (Government of Romania, Baa3 stable); (2) Moody's assessment of a strong probability of government support in the event of financial distress; and (3) high default dependence between the company and its governmental owner, reflecting that they have a significant degree of
exposure to common drivers of credit quality.
The negative outlook on the rating reflects the risk that the insolvency process might initiate the acceleration of debt maturities above the company's repayment capacity and significantly hinder arrangement of any new financing.
Subsequent to today's action, Moody's will withdraw the ratings due to anticipated limited availability of information on the progress of the court-administrated judicial reorganisation and Moody's future inability to assess on a timely basis whether or not Hidroelectrica's debt obligations will have defaulted. Please refer to Moody's Withdrawal Policy on moodys.com."