Moody's Investors Service notes Spark Infrastructure's ("Spark")...

Moody's Investors Service notes Spark Infrastructure's ("Spark") announced strategic review today in relation to its ongoing capital structure, ownership structure, asset profile, and future funding needs. The strategic review considers a number of factors including retention of cash at the operating subsidiaries to support their ongoing capital expenditure.

"The strategic review will not have an immediate impact on the fund's Baa1 rating and the negative outlook on the rating," says Clement Chong, a VP/Senior Analyst.

"Moody's had stated that the negative outlook on the rating considers the uncertainty around the distribution income level from the fund's asset companies, due to their rising capital expenditure requirements and some regulatory uncertainty," says Chong, adding, "This - coupled with the challenge of paying ongoing shareholder distributions to Spark's own security-holders - has the potential to pressure its standalone financial metrics."

Moody's will closely monitor the outcome of Spark's strategic review. Any rating action will consider the Spark's ongoing asset profile, financial position, and ownership structure.

Moody's will also closely monitor Spark's progress on the refinancing of its December 2010 maturity.

The outlook on Spark's rating could return to stable when there is more clarity around its financial profile, particularly with regards to 1) its asset profile, 2) the expected outcome of the regulatory resets for the operating companies, 3) the level of distribution income from the operating companies, and 4) Spark's distribution in the context of its own operating cash flow level. A revision of the outlook back to stable would also be predicated on the fund refinancing its near term debt maturities.

The ability of Spark to maintain the following stand-alone financial metrics would support a return to stable outlook: Funds From Operations (FFO)/Interest in the 5-6 times range, and FFO/Debt around 25-35%.

On the other hand, the rating could come under further pressure if equity distributions from the operating companies came under the threat of material reduction, leading to increased financial leverage at Spark. This could be indicated by a deterioration of standalone metrics such that Adj FFO/Interest falls below 4.5 times and Adj FFO/Debt below 25%. A material change in the business profile of the Fund, as part of the Strategic Review being undertaken, could also pressure the rating.

Also, a sustained deterioration in the credit profiles of the operating companies -- resulting in deteriorations in the fund's look-through financial metrics -- could pressure the rating. Look-through financial metrics that Moody's would look for include: FFO/Interest below 2.6 times, FFO/Debt under 10%, and Debt/RAB rising above 100%.

Spark has debt of A$225 million due to mature in December 2010. A failure to extend or refinance the maturity by June 2010 could also pressure the rating.

The last rating action on July 15, 2009 when the outlook on the Baa1 rating was revised to negative.

Spark's rating was assigned by evaluating factors we believe are relevant to the credit profile of the issuer, including i) Spark's minority ownership of three regulated utilities; ii) the credit profiles of each of its asset companies; and iii) the financial profile of Spark on a standalone and look-through basis. In addition, these attributes were compared with other issuers within Spark's core industry, and its rating is believed to be comparable with those of other issuers of similar credit risk. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Spark Infrastructure is a stapled entity comprising [1] Spark Infrastructure Trust, [2] Spark Infrastructure Holdings No 1 Ltd., [3] Spark Infrastructure Holdings No 2 Ltd., and [4] Spark Infrastructure Holdings International Ltd. The fund is listed on the Australian Stock Exchange. Powercor is an electricity distributor based in Victoria, while ETSA is an electricity distributor based in South Australia.