Moody's upgrades bond rating of PSALM, Napocor

MANILA, Philippines - Moody’s Investors Service has upgraded the bond rating of the Power Sector Assets and Liabilities Management Corp. (PSALM), the National Power Corp. (Napocor) and CE Casecnan Water and Energy Co.

In a statement, the global credit rating agency said the upgrade was applied to PSALM’s $1 billion bonds, Napocor’s $490 million debt securities, and Casecnan’s $24 million debt securities.

Moody’s said the outlook of the bonds and debt securities issued by the three companies was “stable, in line with the sovereign outlook”.

“This rating action follows Moody’s decision to upgrade the Philippine government’s long-term foreign currency rating to Ba3 from B1,” the rating agency said.

It added that the Ba3 rating continues to reflect the Philippine government’s unconditional and irrevocable guarantee for PSALM’s rated senior unsecured debts.

“As PSALM’s bond rating is closely linked to that of the sovereign, any sovereign rating movement would trigger a similar rating movement on PSALM,” it said.

The last rating action on PSALM was on May 2009 when Moody’s first assigned a B1 senior unsecured bond rating with a positive outlook, in line with the sovereign rating.

It said PSALM’s bond rating was assigned by evaluating factors “we believe are relevant to the credit profile of the issuer, such as business risk and competitive position of the company versus others within its industry, the capital structure and financial risk of the company, the projected performance of the company over the near to intermediate term, and management’s track record and tolerance for risk.”

PSALM, wholly-owned and controlled by the Philippine government, was established in 2001 to take ownership, manage, privatize and dispose of all generation-related assets, liabilities, contracts with independent power producers, real estate and other disposable assets of Napocor, including the National Transmission Corp.

PSALM has a corporate life of 25 years. Any remaining assets and liabilities after this period will be assumed by the government.

For CE Casecnan, Moody’s said the Ba3 rating continues to reflect the credit quality of the project offtaker, National Irrigation Administration (NIA), which is supported by a guarantee from the government.

However, Moody’s noted that downward pressure would emerge if CE Casecnan experiences significant deterioration in water deliveries, leading to a drop in cash flow; the company undertakes more aggressive debt-funded dividend payouts; and/or the Philippine government renegotiates the terms of the agreement, such that CE Casecnan’s operations and cash flow.

CE Casecnan is a privately-held Philippine corporation owned by MidAmerican Energy Holdings Co. to develop, construct, own and operate a multi-purpose irrigation and hydroelectric power facility.