Quest for debt capacity may increase risk for European utilities

The increasingly creative structures that European power companies are implementing to increase their debt capacity need careful consideration to ascertain their ratings impact, Moody's Investors Service said in a new Special Comment.
"Moody's believes that these proposals must be thoroughly examined as in many instances overall risk – be it financial, business or both – may not be reduced and companies may therefore not achieve the desired credit, and hence rating, benefits that they expect," said Helen Francis, author of the report.
"Indeed, if more complex structures are indicative of a lack of transparency, a loss of control or greater remoteness from cash flows, they can increase our perception of the company's business risk."
In the report, Moody's examines a number of ways of funding new or existing investments that have been recently implemented, or are under consideration by a number of European utility companies. The rating agency notes that in many instances, there are likely to be a number of considerations that will need to be taken into account in order to assess their rating impact.
"Most transactions will usually need to be assessed on a case-by-case basis in the context of each company's specific market and business conditions and financial parameters," Francis explained.