KEY POINTS:
The phone rang hot between Standard & Poor's Melbourne office and Vector's controversial chairman Michael Stiassny after Mark Franklin was publicly eased from the CEO's job last week.
Franklin's resignation came as a surprise to the influential ratings agency, even though the writing had been on the wall
for months.
The agency immediately sought assurances from Stiassny and other senior executives that Vector remained committed to maintaining its "financial profile" and that a strategic review the company had embarked on as it sought to consolidate its operations after a period of expansion would not affect its credit quality.
But the words Stiassny used last week to explain why Franklin was not the best person to lead Vector into a consolidation phase - when the ratings agency obviously believes the former CEO had been doing just that - undermine the explanations both protagonists have given for a departure that was clearly prompted by the fallout from a failed boardroom coup.
On Monday, Standard & Poor's fired a shot across the company's bow, publicly saying it "remained concerned" about the implications of the recent resignations of the chief executive, chief financial officer and three directors at Vector and their impact on the company's strategic focus. It nevertheless considered the resignations would not immediately affect Vector's credit quality, given the assurances it had received after Franklin's resignation.
But it would monitor developments and evaluate any changes in the company's strategic direction as they happened.
The language used in the press statement seems mild, but if Vector had not been a regulated business with assured cash flows the upshot could have been quite different.
Standard & Poor's had already begun its annual ratings review of the energy monopoly when Peter Fredricson's departure as chief financial officer was announced on May 25.
The abrupt nature of that resignation announcement, which stated Fredricson was leaving that day to consider his "next career move and what opportunities he wished to pursue", concerned Standard & Poor's which immediately sought assurances that the company's "financial profile" would be maintained.
This was particularly important as Fredricson's departure followed last year's furore over the resignation of high-profile directors Tony Gibbs, Greg Muir and John Goulter in protest at Stiassny's "abrasive leadership style" and behind-the-scenes speculation that Franklin would not be long in following him out the door.
Standard & Poor's announcement on June 17 affirmed Vector's BBB+ rating for long-term debt. It also revised the outlook to stable from negative as the risks and uncertainties surrounding the integration of the NGC gas business and the regulatory threat posed by the Commerce Commission to the crucial lines business abated.
Anyone studying the June announcement would understand why Standard & Poor's was prompted to go public this week.
The June release said Vector had successfully integrated the NGC business "as evidenced by the realisation of expected synergies that are expected to drive an improvement in Vector's financial metrics in the medium term". The provisional settlement with the Commerce Commission - basically pegging price rises to the consumer price index until 2009 - had alleviated another short-term risk.
But the reality was that Vector did not have much financial headroom to withstand any adverse regulatory changes.
Vector recorded an after-tax surplus of $39.6 million for the three months ending March 2007, an 18.4 per cent increase on the previous period.
But that profit position obscures the fact that Vector has limited headroom in its financial profile. The finances are expected to improve as Vector continues to consolidate the synergies from the NGC acquisition. It has satisfactory liquidity. But it operates with low cash balances with headroom supplied by its bankers.
Typical of this position was the company's position at April 11, 2007 when Vector had $342 million headroom in its core banking and working capital facilities. The next major tranche of debt - A$260 million ($287 million) - to be refinanced falls due next April.
In reality, Franklin was a gone-burger once the trio of departing directors let it be known that their stoush with Stiassny had been prompted by the deteriorating relationship between the chairman and his CEO. Later reports from sources close to the action state the directors had expected Franklin to join them in opposing Stiassny's chairmanship at the penultimate board meeting last December. Franklin stayed quiet, but the revelations of the disaffection between him and his chairman meant one would have to go.
The reality is that the coup would have failed in any event, as Vector director Bob Thomson decided to stay in the Stiassny camp at the last minute. If Franklin had gone at that point he would not have secured a financial payout.
Franklin - apparently now on "gardening leave" - is sticking close to the agreed script in his few comments to reporters.
Stiassny was reaffirmed as chairman by the remaining directors. But the subsequent appointment of four more commercial directors - Hugh Fletcher, Alison Paterson, Tony Carter and Peter Bird - has changed the board's dynamics.
Warren Kyd - chairman of the Auckland Energy Consumer Trust, which represents the largest shareholding block - would not comment directly when asked if Stiassny's ultimate replacement was now on the board.
But Kyd said that the trust based its new appointments on governance recommendations that were produced in a report by respected company chairman Wayne Boyd.
The four new directors will be confirmed at Vector's agm, but given the controversy of recent months, shareholders will have plenty of questions to ask of their chairman.
