We assess NERL’s liquidity as “strong” under our criteria. We forecast that sources of liquidity will cover uses by approximately 1.7x over the 12 months to June 30, 2013.
We calculate total sources of liquidity of approximately GBP380 million over the 12 months to June 30, 2013, comprising:
-- Unrestricted cash of close to GBP50 million on June 30, 2012;
-- Our forecast FFO of about GBP230 million over the period; and
-- Availability of GBP15.5 million under NERL’s bank facility lines expiring in December 2016. In May 2012, NERL refinanced its bank facilities expiring in November 2012, with a GBP275 million bank facility expiring in December 2016. The new bank facility comprises a GBP245 million revolving term loan and a GBP30 million revolving credit facility, of which there were GBP87.25 million and GBP15.5 million available, respectively, as of June 30, 2012.
We calculate liquidity uses over the period of about GBP230 million, including:
-- GBP28.4 million in amortization payments in respect of bonds due in 2026;
-- Capital spending and working capital outflows that we forecast at about GBP135 million and GBP15.5 million, respectively; and
-- Dividends that we forecast in the region of GBP50 million. We believe that NERL will likely continue to manage dividend payouts to shareholders in accordance with the average gearing target set by NERL’s economic regulator. This target specifies net debt to regulated asset base of 60%, with a cap at 65%. If NERL exceeds the cap, dividends are prohibited.
The stable outlook reflects our view that the U.K. government will maintain its shareholding in NERL, which supports our opinion that NERL benefits from a “high” likelihood of extraordinary government support. The outlook also incorporates our view that the company will continue to deliver strong operational and financial performance over the short to medium term, and that there will be no adverse changes to the regulatory framework under which NERL operates.
We could raise the ‘AA-’ corporate credit rating on NERL if we revised its SACP upward by two notches, to ‘aa-’ from ‘a’. This could occur if adjusted FFO to debt were consistently higher than 40%. In our view, this would most likely result from improved operational performance, driven by a pick-up in airline traffic volumes.
We could lower the ‘AA-’ corporate credit rating if we revised NERL’s SACP downward by two notches, to ‘bbb+’ from ‘a’. This could occur if adjusted FFO to debt were to fall to less than 15%. In our view, this would most likely result from an increase in debt following our adjustment for pension liabilities and/or a severe and sudden drop in demand.
Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.
-- General Criteria: Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010
Ratings Affirmed; CreditWatch/Outlook Action
NATS (En Route) PLC
Corporate Credit Rating AA-/Stable/-- AA-/Negative/--
Senior Secured Debt AA- AA-