Moody's Investors Service has assigned a provisional Ba1 corporate family rating to the Bulgarian Energy Holding EAD (BEH), with a stable outlook.

"This provisional rating is subject to the successful completion of the issuance of new notes as currently contemplated by BEH," with a definite rating to follow once the process is completed and a review has been conducted of the documentation.

"A corporate family rating (CFR) is an opinion of the BEH group's ability to honour its financial obligations and is assigned to BEH as if it had a single class of debt and a single consolidated legal structure. Any debt issued by BEH would likely be rated lower than the CFR given the structural subordination of the creditors at the holding company. However, the potential notching will depend on the actual balance between the debt at the operating companies versus BEH," Moody's explains.

Factors taken into account include BEH's "dominant position within the electricity generation industry in Bulgaria," an improving financial profile, and the ownership it holds of the country's main gas transit and transmission and electricity transmission assets.

Volatile earnings, uncertainty about the full liberalization of the wholesale power market and its impact on BEH, "relatively un-transparent nature" or regulations and weak liquidity management policy, however, are putting constraint on the rating.

Upward change in the rating has limited potential due to "significant uncertainty over the timing and nature of any liberalisation of the wholesale electricity market," Moody's argues.

At the same time, several factors could trigger a downgrade, such as the reversal of "positive regulatory changes" adopted in 2015 that would cause further deficits, changes in the operating environment leading to a deterioration in BEH's financial profile, a reassessment of the estimate of high support from the government, and a downgrade of the government rating itself.

BEH is the 100% state-owned electricity and gas utility in Bulgaria which owns around 50% of the electricity generation facilities in the country, including the 2 000 MW Kozloduy nuclear power plant, 2 713 MW of hydro plants, and a lignite plant using input fuel sourced at BEH-owned mining facilities.

Through its subsidiary Natsionalna Elektricheska Kompania EAD (NEK), it is the single trader on the regulated wholesale power market. It also owns and operates the high voltage electricity transmission grid and the gas transmission and transit networks in Bulgaria, and is also the main regulated wholesale gas supplier.