Fitch Ratings has downgraded Bulgarian Energy Holding EAD's (BEH) long-term foreign and local currency ratings one notch to 'BB-' from 'BB'.BEH’s foreign currency senior unsecured rating was also lowered to 'BB-' from 'BB'.
The outlook is negative, the rating agency said in a statement.
The rating downgrade reflects Fitch’s expectations that the BEH group's credit ratios will be weak in 2015-2016, largely due to accumulated power tariff deficit at BEH's subsidiary national Eelectricity Company (NEK).
“The rating downgrade is limited to one notch as we expect funds from operations (FFO) in 2015-2016 to improve from low 2014 levels on the back of a smaller tariff deficit at NEK. This is due to various legislative and regulatory changes in 2015 and renegotiation of NEK's long-term power purchase agreements with two thermal power plants, AES-3C Maritsa East 1 EOOD and ContourGlobal Maritsa East 3 AD.”
Fitch also said the negative outlook incorporates the agency’s projected FFO adjusted net leverage above the 5x guideline for the current ratings by 2016 before decreasing to below 5x in 2017.
The negative outlook also reflects the BEH group's weak liquidity position in light of large overdue trade payables at NEK and also the possible removal of the single-notch uplift for BEH for state support in the next one to two years if most of its new debt is raised without state guarantees, Fitch said.
BEH will seek a five-year syndicated loan of up to EUR 650M to pay debt owed to AES-3C Maritsa East 1 and ContourGlobal Maritsa East 3, Energy Minister Temenuzhka Petkova said earlier this month. The total debt owed by NEK to the two power stations is approximately BGN 900 M (EUR 450 M), Petkova told BNR radio broadcaster last month.
In March, Fitch lowered BEH's long-term foreign currency issuer default rating to BB from BB+.