International ratings agency, Moody's, has downgraded Transpower's long-term credit rating from Aa2 to Aa3 and left it's outlook stable. Moody's said that the downgrade was a result of Transpower's spending plans to upgrade its networks. "The rating downgrade reflects the expected weakening in Transpower's financial metrics over the medium to long term due to its substantial capital expenditure program to upgrade its networks," Moody's Analyst Spencer Ng said. "Over the next few years, Transpower leverage is expected to gradually increase, as it funds its anticipated network upgrade. As such, the ratio of Funds From operations ("FFO")/Interest is expected to trend towards 3.8x and that of Debt/Capitalisation is projected to be around 58%-60%. "These and other metrics of financial leverage are consistent with its Base credit assessment of 6 (equivalent to underlying rating of A2)," Ng said. Moody's said that Transpower retained a high rating because of the support the SOE had from the government, but that its rating could be downgraded further if the government's rating was downgraded. On the other hand it could be upgraded if the company improved its financial profile. "Transpower's Aa3 rating could be considered for an upgrade upon a sustained improvement in the company's financial profile as demonstrated by FFO to Interest Coverage of 4.5 times and Debt to Capitalisation ratio of around 40-45%," Moody's said. "The rating could come under downward pressure if there is a downgrade in New Zealand's Aaa rating or a material change in the dependence and support level for Transpower."