Moody's downgrades Centrica as political pressures mount

20th Mar 2015 09:38

Moody's has downgraded the issuer rating and senior unsecured ratings of British Gas owner Centrica from Baa1 from A3.In a ratings action after the close of markets on Thursday, Moody's said its downgrade primarily reflected lower energy prices and generally poorer trading conditions for Centrica.The company's financial profile has deteriorated following difficult trading in most divisions in 2014, with adjusted operating profit 35% below 2013 levels. In February, Centrica said it would take further action to mitigate pressures on its business. These include a scrip dividend along £1 billion worth of divestment and cost cuts.However, Moody's says these are unlikely to restore credit metrics consistent with an A3 rating, at least over 2015-16.Helen Francis, Senior Credit Officer and lead analyst at Moody's, noted: "Existing conditions have hurt the company's profitability and weakened its financial profile to a level that can no longer support an A3 rating, despite efforts to implement restorative measures."While the rating action primarily reflects the factors cited, Moody's also took into account the continuing political, regulatory and competitive risks to Centrica's energy supply business.Centrica and other players in the UK utilities market are also facing a Competition and Markets Authority (CMA) investigation on consumer pricing. The CMA will publish its provisional recommendations either in May or June 2015.Moody's said the CMA's recommendation, or changes in government policy following the 7 May general election, may result in interventions that promote competition to the detriment of Centrica's profitability.