Business Irish

Sunday 22 October 2017

Bord Gais gets loan facility of €500m but warns on prices

Energy

Donal O'Donovan

Donal O'Donovan

BORD Gais has signed a deal to borrow €500m from international banks, despite coming under pressure in the markets due to the sovereign-debt crisis.

The loan refinances an older deal and means that its total debt will remain around €1.8bn.

Nevertheless, the company warned yesterday that downgrades by credit-rating agencies could ultimately start to drive up prices for consumers.

The new loan was arranged by RBS and AIB is the only Irish lender. It is a revolving credit facility, which works like a corporate overdraft that can be drawn down as needed.

There is no immediate plan to draw down the revolver, but it can be used for additional liquidity if required, said Bord Gais CEO Michael O'Sullivan.

The company opted to borrow €500m after its original request for €400m was oversubscribed. Despite that strong interest from banks, Bord Gais admitted to paying more to borrow than its European peers and blamed the Irish debt crisis.

Last week, ratings agency Moody's cut the Government's rating below "investment grade" for the first time. It then cut Bord Gais's rating to the last high-grade rung, two "notches" above the Government.

Executives said Bord Gais signed the €500m agreement just in time to avoid having its credit rating cut to "junk" status.

Mr O'Sullivan said the company would have suffered a bigger downgrade last week if it had not already secured the €500m loans agreement.

"Rating agencies include a company's ability to access the debt market when they assess the rating -- if the loan hadn't gotten away we could have followed the sovereign to a non-investment grade rating," added Mr O'Sullivan.

He said rating downgrades had already increased Bord Gais's annual interest bill by €10m and that every downgrade had added a quarter of a per cent on average to the company's borrowing costs.

This provides further evidence that the rating downgrades suffered by the Irish Government are filtering into the real cost of doing business here.

A cut to junk status would have an even bigger impact, because it would also raise the cost of doing business with suppliers in the international market, where Bord Gais buys 90pc of supplies.

Wholesale suppliers use credit ratings when they decide their terms of business.

Mr O'Sullivan said that if Bord Gais lost its investment-grade status, it could be forced to post collateral when signing gas contracts.

Along with rising interest rates, that would hurt the company's bottom line and Bord Gais would have to consider passing that on to customers.

However, Mr O'Sullivan insisted that cost rises associated with a rating cut would not threaten profitability.

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