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S&P, Moody's downgrade SSE on trading losses, failed UK retail merger

U.K.-based utility SSE PLC saw its credit ratings cut by Moody's Investors Service and S&P Global Ratings after the company reported losses in its trading division and halted a planned merger and subsequent listing of its British supply business with that of rival NPower.

Moody's downgraded its issuer rating for the company and its subsidiaries from A3 to Baa1, and S&P Global Ratings lowered its long-term rating from A- to BBB+, the companies said Dec. 20. Both gave a stable outlook for their respective ratings.

"We expect a sustained period of higher debt and lower cash flows as a result of difficult trading conditions across several divisions, including recent gas trading losses, acute competitive and regulatory pressures in retail energy supply and suspension of the capacity market, as well as the likelihood of falling returns in regulated networks," said Graham Taylor, a Moody's vice president and the lead analyst for SSE.

SSE had issued a profit warning in September, triggering a ratings review by both issuers. The company on Dec. 17 also called off plans to merge its U.K. household business with NPower, a subsidiary of Germany's Innogy SE, partly because of a looming cap on energy prices by the British regulator. SSE said it was still looking to either sell or otherwise spin off its retail division, SSE Energy Services.

"Considering the challenging market conditions in the U.K. electricity and gas supply market, we believe that it is very unlikely that any debt will be transferred as part of a spinoff or any other type of transaction involving SSE's supply business that could have offset some of the loss of cash flow for SSE and support deleveraging," S&P Global Ratings said in a statement.

The issuer also said it expects SSE's credit metrics to decline over the next two years because of lower earnings, large capital expenditures for building new renewable capacity and extending its transmission network as well as inflexible dividend payments.

SSE said in a statement that the new credit rating metrics were sustainable and would allow it to secure funding from debt investors at competitive rates.

"As a company with an increasing focus on regulated energy networks and renewable energy we remain committed to a strong balance sheet, supported by financial discipline and a commitment to taking the right decisions for the long term," SSE Finance Director Gregor Alexander said.

This S&P Global Market Intelligence news article contains information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. The original S&P Global Ratings documents referred to in this news article can be found here.