On Monday, Moody’s rated the $500 million bonds issued by Hrvatska elektroprivreda (HEP) with a ‘Ba2’ rating, accompanied by a negative outlook.
These are euro-denominated bonds issued in dollars, without government guarantees, with seniority in repayment, which HEP issued in early November. They are due for repayment in 2017 and carry a coupon interest rate and yield of six percent.
– The assigned Ba2 rating reflects the same rating given to other HEP’s unsecured bonds with seniority in repayment and is consistent with HEP’s Ba2 rating, explains Richard Miratsky, Vice President of Moody’s, Senior Analyst, and Lead Analyst for HEP.
The net proceeds from the issued bonds will be used by HEP to repay debt amounting to €260 million, while the remainder will be used to finance capital expenditures and other needs, Moody’s stated in a press release on Monday.
According to financial results up to June 30 of this year, HEP has not complied with certain provisions of loan agreements amounting to about 20 percent of the company’s total debt, Moody’s notes.
Half of those loans with breached contractual provisions are covered by guarantees from the Croatian government. Creditors have waived the instruments available to them due to non-compliance with the provisions until the next review on December 31 of this year, Moody’s states.
Weaker financial results are associated with the drought that resulted in significantly lower profitability and cash flow, given that half of HEP’s installed capacity consists of hydroelectric plants, Moody’s notes. They expect that, considering the anticipated increased rainfall and expanded room for compliance with contractual provisions, HEP will meet all financial obligations by the end of the year.
