Focus shifts to merger impact on GDF Suez

As International Power credit investors breathed a sigh of relief at the confirmation of a long-expected merger with GDF Suez, attention turned to the impact of the deal on the more creditworthy partner.

Moody’s slapped a downgrade review on GDF Suez’s Aa3 ratings yesterday, saying that the additional debt and increased business risk resulting from the merger might weaken the French company’s credit profile.

Independent research provider CreditSights predicted that this rating (which is actually A1 after stripping out implied sovereign support) is probably too high and is likely to come down a notch. But it says that GDF Suez should still be able to maintain mid single A stand-alone ratings from both Moody’s and Standard & Poor’s.

GDF Suez said that it is looking to make €4 billion to €5 billion of asset disposals to achieve its goal of strengthening its credit metrics. The company's credit default swap spreads have drifted some five basis points wider on the news of the deal, and were quoted yesterday at 86/91bp according to CMA.