Orsted ‘Surprise’ Credit Downgrade Caps Worst Week on Record
(Bloomberg) -- Orsted A/S was downgraded to the lowest tier of investment grade by S&P Global Ratings on increasing risks to its US offshore wind business as the Trump Administration moves to halt the sector’s development.
It’s just the latest bit of bad news for the company after the announcement of a rights issues on Monday sent shares plunging the most ever this week. Over the past few years, the Danish utility has been forced to write off billions of dollars amid cancellations and delays to projects on both sides of the Atlantic because of soaring costs and volatile policies.
Orsted’s long-term issuer credit rating was dropped one notch to BBB-, just one step above junk, S&P said in a statement on Thursday. It cited business challenges including the Danish company’s inability to carry out project refinancing and divest 50% of its US-based Sunrise wind project.
The downgrade “can only be characterized as a clearly negative surprise,” Danske Bank Chief Credit Analyst Jakob Magnussen wrote in a note. “We had expected that S&P would stay at ‘BBB’ and possibly even assign a positive outlook.”
Moody’s, meanwhile, affirmed Orsted’s long-term rating at Baa2 on Thursday.
Shares in the utility were little changed at about 10:30 a.m. in Copenhagen, but are down 34% this week. The company’s bond prices slipped marginally after the S&P downgrade.
“These expected updates do not impact our business plan,” said Trond Westlie, Orsted’s chief financial officer. “We’re comfortable with our credit metrics and believe they are in a good place commensurate with solid investment grade rating.”
All the firm’s current offshore wind projects, totaling 8.1 gigawatts, are progressing according to plan, Westlie said in an emailed comment.
S&P also noted that it had revised its view of the firm’s management and governance as “moderately negative” because of the credit impact of its “high-risk strategy that, to some extent, current management inherited.”
Orsted said earlier this week that it planned to raise as much as 60 billion Danish kroner ($9.4 billion) in a stock sale to steady its finances after US President Donald Trump’s policies to limit offshore wind stifled the company’s ability to sell project stakes.
Since coming into office, Trump has halted permitting for new offshore wind developments, withdrawn millions of acres of ocean for development, and hastened the end of renewable energy tax incentives.
For Orsted, the moves by the Trump Administration made it impossible to sell down a stake in Sunrise Wind that’s under construction off the coast of New York, leaving a hole in its funding plans. The ability to sell parts of its projects is crucial to Orsted’s business model and that risk was key to S&P’s decision.
“The farm-down strategy has been a key pillar of Orsted’s business strategy, but this business model now pertains higher risk,” S&P said. “Previously we viewed Orsted’s track record on execution as predictable. However, the cancellation of the disposals of Sunrise Wind severely and directly hinders credit metric performance.”
Lower credit ratings can translate to higher borrowing costs for a company. Moody’s Ratings and Fitch Ratings both still rate Orsted debt two notches above junk. Typically, two of the three major ratings firms would need to designate a company as non-investment grade for investors to consider it to be so.
(Updates with comment from CFO in seventh paragraph.)
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