Fitch Ratings has affirmed Czech EP Energy's long-term Issuer Default Rating (IDR) at BB+ with a stable outlook as well as its EUR1.1bn senior secured notes at BBB- citing increased dividend payments to its new holding company, the ratings agency said in statement.
The ratings affirmation reflects Fitch expectations that EP Energy will pay some 80%-90% of adjusted net income in dividends to its new holding company CE Energy. Up to now, it was expected dividend payment to account for up to 50%.
In a separate statement, Fitch said it expects to assign a long-term IDR of B+(EXP) with stable outlook on CE Energy. It has already assigned a B+(EXP)/RR4 expected rating on CE Energy’s proposed senior secured notes. Newly set-up CE Energy owns 100% of the shares of EP Energy. CE Energy’s creditors are solely reliant on dividends from EPE for debt service, Fitch said.
EP Energy’s credit profile is supported by its cash flow visibility with its three core divisions - contracted lignite mining, low-cost heat supplies and cogeneration power sales through regional regulated distribution monopolies and long-term power purchase agreements – accounting for over 80% of the company’s EBITDA. The rest is derived from power generation, trading, and supply, making its earnings and cash flows stable and predictable. EPE also benefits from geographical diversification and limited exposure to adverse regulation, Fitch said.
EPE is the largest heat supplier in the Czech Republic with an installed thermal capacity of 4.1GW, mostly lignite-fired, and heat supplies of 18.5PJ in 2012, mostly to households (57%) and large industrials (20%). It also operates one of the largest low-cost cogeneration plants in the country.
EP’s recent acquisition of a German power plant and an adjacent mine as well as buying a 49% stake in Slovak power distributor Stredoslovenska Energetika (SSE) are considered by Fitch as mildly positive for the company’s business profile even though leverage will temporarily increase, it is still forecast to be within the current rating guidelines. Yet, a more aggressive financial policy (including opportunistic M&A or higher dividends) may further increase leverage and lead to a rating downgrade, Fitch has warned.
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