LONDON, May 17 /PRNewswire/ -- Duff & Phelps Credit Rating Co. ("DCR")
notes WPD Holdings UK's ("WPD") announcement on May 2, 2000 that it has made
an approach to Hyder plc's ("Hyder") board with a view to possibly making a
cash purchase offer for the company. WPD is the non-operational ultimate
holding company of Southern Investments UK plc ("SIUK") through which it in
turn owns Western Power Distribution (formerly SWEB). It is DCR's preliminary
view that the conclusion of this acquisition, in line with current plans,
would have a negligible effect on Western Power Distribution and SIUK's debt
and cash flow protection measures.
Hyder is a multi-utility company headquartered in Cardiff, Wales
(currently rated BBB/Baa2/A- by Fitch IBCA/Moody's/S&P). It is the holding
company of both Dwr Cymru Cyfyngedig ("DCC") and South Wales Electricity plc.
The Office of Water Services ("OFWAT") and the Office of Gas and Electricity
Markets ("OFGEM") regulate DCC and South Wales Electricity plc respectively.
Both businesses deliver secure and stable cash flows within the context of the
current regulatory price restraints. Following the 1999 price control reviews
South Wales Electricity plc must seek improvements in efficiency and quality
of supply and DCC is required to deliver a capital investment programme
amounting to just over GBP1 billion. Hyder also has a non-regulated business
engaged in planning, developing and designing, and advising on financing,
installing, operating and maintaining infrastructure worldwide. The company
has assets of over GBP2.5 billion and employs over 9,000 people worldwide.
In making its preliminary assessment of the impact of this planned
acquisition on the ratings of Western Power Distribution and SIUK securities,
DCR has taken into account the published details of WPD's possible offer for
Hyder. In particular, the waivable pre-condition under which WPD will agree
to the sale of DCC. Positively, the proposed sale of DCC, which has a
regulated asset value of approximately GBP2 billion, should allow leverage
levels in the remaining businesses to stay broadly constant. In addition, it
is estimated that the synergies gained by combining WPD's distribution
business with South Wales Electricity plc has the potential to deliver
significant annual savings. Taken together with the secure and stable cash
flows of South Wales Electricity plc, within the context of the regulatory
price restraints, DCR expects any acquisition would have a broadly neutral
effect on Western Power Distribution and SIUK's credit quality.
DCR's current short-term rating of Western Power Distribution is
"D-1" ("D-One") with the following ratings assigned to debt held at the SIUK
level.
Security Class DCR rating
US$168 million senior notes due 2001 "A-" (Single-A-Minus)
US$332 million senior notes due 2006 "A-" (Single-A-Minus)
US$85 million guaranteed preferred
capital securities "BBB+" (Triple-B-Plus)
DCR will hold detailed discussions with WPD's management and formally
review these ratings following any further development of the company's offer
for Hyder.
Western Power Distribution, the operational subsidiary of WPD, is one of
12 regional electricity companies ("RECs") in England and Wales licensed to
distribute and supply electricity within an authorized area. In September
1999 the company sold its supply business to London Electricity ("LE") for
160 million. Following this sale Western Power Distribution's business
comprises its monopoly distribution business, which is engaged in the supply
of network and metering services to retail utility suppliers.
Full separation of the supply and distribution businesses is expected to
be achieved by December 31, 2000. DCR's rating of Western Power Distribution
and SIUK reflects the low risk, stable and highly efficient nature of the
distribution business. Western Power Distribution received the lowest level
of cut (20 percent) in OFGEM's final proposals in recognition of the
significant improvements in customer service and system reliability that the
company has made. Further planned efficiency and cost saving initiatives
helping to support future financial performance are strong factors in DCR's
overall assessment of this credit.
DCR is a leading global rating agency with 34 local market offices
providing ratings and research on debt issues and insurance claims paying
ability in more than 50 countries. For additional research on Western Power
Distribution, visit DCR's web site at http://www.dcrco.com (Quick Search:
WPD). DCR's research is also available on Bloomberg at DCR, First Call's
BondCall Direct/Research Direct at http://www.firstcall.com and Multex at
http://www.multex.com, as well as through other third-party providers.
SOURCE Duff & Phelps Credit Rating Co.
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Related links:
http://www.dcrco.com
CONTACT:
Richard Hunter of Fitch IBCA,
+44-20-7417-4362, or rhunter@fitchibca.com, or Gracie
Ebadan-Bola, +44-20-7417-7945, or ebadan-bola@dcrco.com, or
Aileen Kelly, +44-20-7417-7115, or kelly@dcrco.com, both of DCR
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