Moody’s downgraded IEnova’s ratings to Baa2/Aa2.mx; negative outlook.
IEnova is a owned subsidiary of Sempra Energy (Baa1 under review), a Southern California-based utility holding company.
Likewise, IEnova owns and operates (including joint ventures) more than 3,400 kilometers of pipelines for natural gas, LPG and ethane, which makes it an important participant within the pipeline sector in Mexico.
The company has invested around $ 9.6 billion through 2019 in total assets. The company’s strategy has evolved in recent years in order to diversify its sources of income and reduce its dependence on government-related entities.
IEnova and its perspective
The downgrade of IEnova’s ratings to Baa2/Aa2.mx from Baa1/Aa1.mx reflects both, the downgrade of the Mexican Government’s ratings and the consequent deterioration in the credit quality of the counterparts related to IEnova’s government, including CFE and PEMEX.
The negative outlook reflects Moody’s view that it cannot fully decouple IEnova’s source of cash flows from the creditworthiness of CFE and PEMEX, entities that remain negative.
The outlook remains negative. The downgrade of the ratings arises from the recent rating actions and prospects of the Government of Mexico (negative Baa1), the Federal Electricity Commission (CFE; Baa1/Aa1.mx negative) and Petróleos Mexicanos (PEMEX; Ba2/A2. mx negative).
As a result of the negative outlook, Moody’s does not expect upward pressure anytime soon. His assessment of an improvement in counterparty risk, coupled with the strengthening of IEnova’s financial indicators, for example, FFO/debt equal to or greater than 25% on a sustained basis, could generate upward pressure on the ratings.
There could also be downward pressure on the ratings if the ratings of IEnova’s main off-takers drop.
IEnova could be downgraded if its main gas pipeline projects deteriorate or if increased indebtedness causes a sustained deterioration in its credit indicators; for example, FFO / debt below 20% on a projected and sustained basis.