Moody's Investors Service has cut Chorus's credit rating a notch to the bottom of its investment grade band over the prospect of enforced price cuts to its copper line service.
The rating agency downgraded Chorus's rating to Baa3 from Baa2, and kept a negative outlook, over the regulatory risk hanging over its earnings stream from services delivered on the copper network, and higher capital expenditure and operating expenses than originally anticipating, Moody's said in a statement. The negative outlook was due to the uncertainty around whether Chorus can alleviate the regulatory risk, Moody's said.
"The recent NZCC (New Zealand Commerce Commission) regulatory decision regarding UBA (unbundled bitstream access) pricing will have an adverse impact on Chorus's financial profile, with annual EBITDA (earnings before interest, tax, depreciation and amortisation) decreasing by around 20 percent from 2015 absent measures being contemplated by Chorus," senior analyst Maurice O'Connell said.
"As a consequence we expected adjusted financial leverage, measured as debt/EBITDA, will likely exceed the tolerance level set for Chorus's Baa2 rating," he said.
The rating agency anticipates Chorus's leverage will likely increase as the fibre roll-out continues, and said the company's banking covenants would be breached in 2015 if the network operator can't alleviate the impact of the regulator's decision.
The company's shares fell 5.1 per cent to $1.46 in trading today, and have gained 6.9 percent this year.