The NZ$200 million of preference shares issued in New Zealand by Contact Energy controlling shareholder Origin Energy have been downgraded to "junk" status following a series of reviews on Origin by rating agency Standard & Poor's.
The New Zealand preference shares, issued by Origin Energy Contact Finance No. 2 Limited, were downgraded one notch, from an investment grade rating of BBB- to a non-investment grade rating of BB+. Non-investment grade issues are often colloquially referred to as "junk bonds".
At the same time S&P tweaked the Origin parent company's long term corporate credit and senior-unsecured debt ratings to BBB from BBB+ and moved the outlook from negative to stable.
As well the rating on the €500 million hybrid issued by Origin Energy Finance is lowered two notches to 'B+'.
"The rating action reflects our view that factors outside of Origin's control mean that earnings growth from Origin's core energy business for the next few years is likely to be weaker than we previously expected," Standard & Poor's Ratings Services credit analyst Richard Creed said.
"This is because the persistence of the trend of weaker electricity-demand levels is leading to lower volumes, particularly in the mass market segment, and because adverse regulatory pricing outcomes are affecting earnings from the Queensland market.
"Accordingly we consider Origin could find achieving its fiscal 2013 EBITDA guidance from last November challenging. However, a return to more normal market conditions means the company is likely to return to growth in fiscal 2014."
The NZ preference shares are perpetual and carry a current interest rate of 4.02%. They were changing hands on the NZX's debt market at NZ$63 per NZ$100, down $1 on the day today.