Revenue required for investment grade credit rating

DLA Piper instructed Sapere to undertake analysis and provide a summary of advice to the Australian Competition & Consumer Commission (ACCC) in relation to a variation proposal by NBN Co Limited (NBN Co) to its special access undertaking.

The team, comprising of Kieran Murray, Dean Nutsford and Tony van Zijl, were asked to:

• estimate the increment to revenue above the Annual Building Block Revenue Requirement (ABBRR) required by NBN Co to transition to an investment-grade credit rating
• calculate the portion of the Initial Cost Recovery Amount (ICRA) that could be recovered from that additional revenue.

The analysis focuses on these matters using NBN Co’s building block model and considers:

• scenarios based on the benchmark firm and for the actual firm
• sensitivity analysis for dividend assumptions
• variation in estimates of WACC
• different time periods for when an investment-grade credit rating is to be achieved
• shifting, or smoothing, allowed revenue and ICRA recovery over time to better match NBN Co forecasts of actual revenue.