S&P affirms IPower ratings (IPR)

NEW YORK, Sept 30 - Standard & Poor's Ratings Services said today it affirmed its double-'B' long-term corporate credit and debt ratings on the U.K.-based power developer International Power PLC (IPower). The outlook is stable. The affirmation follows an annual review.

"Compared with some of its peers, IPower had a successful year. It has refinanced a number of its existing projects and achieved financing for new projects," said Standard & Poor's Infrastructure Finance credit analyst Jan Willem Plantagie. "In addition, the management has continued its prudent management strategy and policy and focus on core geographic areas and shown prudence when bidding for acquisitions," continued Mr. Plantagie.

IPower is active in 13 countries, and owns 9,955 megawatts (MW; net) generating capacity and 2,916MW (net) heat capacity. It also has interests in 1,190MW (net) capacity under construction.

"Apart from general concerns about the negative equity market perception of power developers, uncertainty about expected revenues from its U.S. subsidiary American National Power (ANP) is a concern, because profits from ANP are supported by the ongoing payment of liquidated damages by the manufacturer Alstom for the reduced performance of its turbines, which will end in 2003. This has been factored into the rating," said Mr. Plantagie.

IPower's half-year results matched expectations. Profits before interest and tax, excluding exceptional items, increased by 37% to GBP208 million ($325 million).

It seems likely that, unless the share price improves significantly, the $358 million convertible bond due 2005 will be redeemed early in 2003. IPower has sufficient liquidity on its balance sheet nonetheless, with about GBP800 million in cash as of August 2002.

About 45% of IPower's future revenues are exposed to commodity price risk and there is also some portfolio concentration and correlation risk among the IPower projects. The company, however, has a relatively strong financial profile. Standard & Poor's forecasts a minimum funds from operations interest coverage level of 3.7 times (x), and 2.9x in a downside scenario that assumes a 50% cut in U.S. project EBITDA, relatively low parent debt levels and consolidated leverage that is expected to remain below 60%. In addition, IPower has very limited trading exposure and the assets have performed well over the last year.

"The company's stable outlook is supported by a financial profile that maintains adequate cash interest coverage levels and consolidated leverage below 60%, and an overall projected cash quality that should not deteriorate. If cash flow quality improves and becomes less speculative, and ANP's situation improves, a rating upgrade could follow," added Mr. Plantagie.

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