Chorus credit rating upgraded on copper decision, capital management, Moody's says

Monday 22nd February 2016

Chorus's credit rating has been upgraded a notch by Moody's Investors Service following the Commerce Commission's decision on pricing for the network operator's regulated copper lines and the company's decision to maintain its capital management policies.

Moody's raised its rating on the Wellington-based company to Baa2 from Baa3, with a stable outlook, having signalled an upgrade in December due to the regulator's decision to let Chorus raise prices for access to the copper network. The upgrade comes after Chorus last week said it would resume paying dividends and affirmed annual capital expenditure to be between $580 million and $600 million for the 2016 financial year. Potential appeals against the regulator's decision have also been dropped by Chorus customers in recent weeks.

"The rating upgrade reflects the positive impact of the regulatory decision in December 2015 on Chorus's financial profile," Moody's senior analyst Ian Chitterer said. "The upgrade also takes into account Chorus's capital management update announcement on 19 February 2016 in which its board stated that it intends to maintain capital management policies and financial policies that Moody's would view to be generally consistent with a rating of Baa2."

Chorus got a reprieve from the regulator in December when the commission judged earlier decisions to cut prices for internet retailers to access the company's copper lines network were too severe, and set the wholesale broadband price at an average $41.69 a month over the next five years, up from $38.43. Chorus upgraded its earnings guidance for annual earnings before interest, tax, depreciation and amortisation to be between $580 million and $600 million on the news, having previously projected a modest decline from the adjusted $546 million reported in 2015. It has since said it was tracking in the top of the range.

Moody's said the rating could be upgraded again if the company's adjusted ratio of debt to ebitda drops below three times. On the flipside, it could be downgraded if the debt-to-earnings ratio blew out beyond four times or if costs mounted on the ultrafast broadband roll-out. A less likely downgrade was seen if the government's Crown Fibre Holdings reduced its support for the programme.

Chorus shares fell 2 percent to $3.88, and have increased 1.3 percent this year, outperforming the S&P/NZX All Index's 2.8 percent decline over the same period.

BusinessDesk.co.nz

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