Moody's may downgrade Scottish Power

Moody's Investors Service said it placed the long-term ratings of the Scottish Power group on review for possible downgrade following the recent announcement that Iberdrola SA has made an offer to acquire 100% of the shares of Scottish Power plc.

Scottish Power plc, the holding company, has long-term ratings of Baa1. Scottish Power UK plc, the main issuer of debt at the subsidiary level, has standalone ratings of A3. Scottish Power UK plc has also issued debt guaranteed by its regulated subsidiaries, and this guaranteed debt is rated A2 in line with these subsidiaries' ratings.

The offer values the equity of Scottish Power at £11.6 billion, and the acquisition is to be funded through a £8 billion syndicated credit facility to cover the cash acquisition price and the potential partial refinancing of debt at the Scottish Power group.

The agency said its review reflects the lack of clarity at this point with regard to the potential debt structure within the Scottish Power group and the levels of cash that may be upstreamed to Iberdrola to meet debt servicing requirements, in the event that the acquisition is successful.

Moody's nonetheless expects that the acquisition debt would be raised at the level of Iberdrola and that Iberdrola will consider a rational debt structure within any such new group to minimize any negative rating impact.

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