Origin Energy Faces Higher Borrowing Costs After Ratings Cut

Origin Energy Ltd., Australia’s biggest electricity retailer, will have to pay higher borrowing costs on a A$2.4 billion ($2.5 billion) loan after having its credit rating cut, a person familiar with the matter said.

The interest margin will rise to 200 basis points over the bank bill swap rate from 180 basis points for the four-year tranche of the facility, and to 220 basis points from 200 basis points for the five-year part, the person said, asking not to be identified because the details are private.

Moody’s Investors Service Inc. and Standard & Poor’s cut Origin Energy’s credit rating to Baa2 and BBB respectively after the company reported weaker-than-expected first-half results last week. Fitch Ratings maintained its BBB+ rating. The loan’s margin is based on a ratings grid and calculated on the lower ranking in the event of a split rating, the person said.

“As is customary with all bank facilities, there is a pricing grid linked to credit rating, and as indicated to the market there will be an immaterial increase in Origin’s interest expense associated with the credit rating downgrade,” Anneliis Allen, a Sydney-based spokeswoman for Origin Energy, said in an e-mailed response to questions from Bloomberg.

Origin Energy reported a cost increase at its A$25 billion liquefied natural gas project in Queensland and cut its full-year profit forecast for the second time in three months on Feb. 21. Net income fell 34 percent to A$524 million for the six months ended Dec. 31, the Sydney-based company said in a statement.

Split Loan

The A$2.4 billion loan was signed in October and led by Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia and National Australia Bank Ltd., according to data compiled by Bloomberg.

It’s split into a A$941 million tranche due 2016, a A$1.234 billion portion due 2017 and a A$225 million part also due 2017, the data show.

As per its ratings grid, Origin must pay a 165 basis-point margin for the four-year money and 185 basis-point margin for the five-year if it has a rating of A3 or equivalent, the person familiar with the matter said.

That rises to 180 basis points and 200 basis points for a rating of Baa1, 200 basis points and 220 basis points for Baa2, and 230 basis points and 250 basis points for Baa3, the person said.

Shares in Origin Energy rose 0.2 percent to close at A$12.19 today. The stock fell 5.4 percent last week.