S&P downgrades Meralco rating

Standard & Poor’s Ratings Services has downgraded its foreign currency rating on Manila Electric Co. (Meralco) as it expressed concern that the power distributor might not be able to meet its maturing financial obligations amounting to over P11 billion.

S&P brought down its Meralco rating from "CCC" to "CC" and retained its "negative" outlook rating on Meralco, indicating that another downgrade might be in the offing S&P’s "CC" rating indicates that the company is "currently highly vulnerable", compared to its previous "CCC" rating given to an obligor that is "currently vulnerable and dependent on favorable business, financial and economic conditions to meet its financial commitments."

The "CC" rating is only one grade above the "D" rating which is given to an obligation in payment default. A negative outlook, on the other hand, indicates that a rating may be lowered even further.

S&P credit analyst Erly Witoyo said Meralco has obligations totaling upward of P11 billion due between now and the end of 2003. These obligations include repayment of short-term debts of P5.5 billion, the current portion of long-term debts P2.5 billion, and mandated refunds to customers of P3 billion.

Witoco said Meralco expects to roll over or extend short-term debt obligations, although its ability to secure a favorable agreement with creditors before maturity remains uncertain.

According to S&P, Meralco’s cash balance as of May 2003 was about P3.5 billion to P4 billion, while cash flow from operations was expected to be P900 million for the second half of 2003.

S&P’s downgrade comes after Meralco announced that it has asked its creditors for another 180-day extension on the payment of its maturing P5.5 billion short-term debts.

Meralco’s creditors – BPI, Equitable PCI Bank and Banco de Oro – have already restructured the P5.5-billion debt for 90 days from April 21 to July 21 of this year. This is only part of the P11-billion obligation scheduled to mature this year.

Citibank and BPI, the financial advisors of Meralco for the comprehensive liabilities management plan (CLMP), are arranging a revised loan restructuring scheme that will keep the viability of Meralco and at the same time, enable it to maintain its good relationship with its lenders.

Meralco has already admitted, however, that the company would have no choice but to accept the terms of the creditors if they insisted on another 90-day repayment schedule.

The restructuring of Meralco’s loans is necessary to keep it viable after the Supreme Court ordered the power utility firm to reimburse its customers some P30.04 billion in billing overcharges collected from 1994 to May 2003. – Des Ferriols