Moody’s Investors Service has downgraded New Zealand based telecommunications utility group Chorus’ credit rating from Baa2 to Baa3, with a negative outlook.
Moody’s had previously placed Chorus on review for a possible downgrade, following the release of the Commerce Commission’s (NZCC) damaging copper broadband pricing decision in November.
Moody’s vice president and senior analyst, Maurice O’Connell, said the downgrade reflected the material impact on Chorus’ credit profit, the effect of the NZCC's regulatory decisions, as well as its higher capital expenditure and operating expenses compared to the investor service’s original expectations.
“The negative outlook reflects the uncertainty surrounding the countermeasures and their effectiveness in offsetting the impact of the regulatory decision,” he said.
“The outlook could change to stable if the measures implemented provide sufficient visibility around Chorus’ ability to improve its financial profile, such that debt/EBITDA stays below 5 times on a consistent basis.”
Chorus chief financial officer, Andrew Carroll, said the downgrade was disappointing given that the commission’s pricing decision did not come into effect until December 2014.
“As we explained in December, we are assessing all options available to us, including cutting all discretionary activity, re-pricing commercial services, generally managing for cash and accessing capital management options,” he said.
“Chorus has appealed the commission’s initial UBA decision to the High Court and requested that the commission undertake economic cost modelling of both UBA and UCLL pricing, which differs from its original benchmarking approach, as allowed for by the legislation.”
Chorus is rated BBB, credit watch negative by Standard & Poor’s.