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16 Oct 2000
MOODY'S AFFIRMS LONDON ELECTRICITY'S A2/PRIME-1 RATINGS FOLLOWING ACQUISITION OF COTTAM POWER STATION
London, October 16, 2000 -- Moody's Investors Service has affirmed the A2 long-term rating and Prime-1 short-term rating of London Electricity plc ("LE") following the announcement of the acquisition of the Cottam power station by an affiliate of LE, London Power Company. Although the acquisition will lead to a higher level of overall debt within LE's parent company, Cottam is expected to generate sufficient cash to service this debt and the acquisition will be of strategic value to LE. The ultimate parent of the group, Electricit‚ de France ("EDF", rated Aaa), has recently reaffirmed their commitment to LE. The outlook for the ratings is stable.
The London Power Company, a wholly owned subsidiary of London Electricity Group plc ("LEG plc") has announced that they are buying the Cottam power station from PowerGen plc for a cost of around œ400 million including a payment for working capital such as coal stocks, which will be determined on completion towards the end of 2000. Cottam, which was commissioned in 1969, has four coal-fired power units with a total capacity of 2028 MW. Completion of the acquisition will be subject to clearance by regulatory and competition authorities. PowerGen is selling Cottam as part of its disposal programme to fund the acquisition of LG&E Energy. Cottam is an efficient, well maintained and efficiently run power station. Cottam typically runs its units independently offering both a mid-merit and peaking capability in supplying the UK power market.
In April 2000, London Power Company acquired 100% of Sutton Bridge Power (rated Baa3), which owns the 790MW CCGT power station at Sutton Bridge in Lincolnshire, for a cost of œ156 million plus working capital. London Power Company also has a part ownership in Barking Power. Following the acquisition of Cottam, London Power will supply around 13 TWh of power per annum. The parent of the group, EDF, also supplies around 14TWh of power through the 2000 MW interconnector between France and England.
LE, which acquired the supply business of South Western Electricity for œ160 million in June 1999, has a total demand for power of around 30 TWh per annum. The acquisition of Cottam means that EDF is able to match nearly half of this demand internally within the UK and 90% of it including that supplied through the interconnector. This demand/supply balance - short of supply but well hedged - is increasingly been seen as optimal by the players in the power market as they prepare for the delayed introduction of the New Electricity Trading Arrangements ("NETA"). Moody's sees the acquisition of Cottam as having a positive effect on LE's business risk profile.
While the acquisition is not expected to directly impact LE's financial position, the transaction will lead to a higher level of debt within LEG plc which can call on dividends from LE. Both LE and The London Power Company, which is buying Cottam, are 100% owned by LEG plc. LEG plc itself represents nearly all the assets and cashflows of the parent company with the UK group, EDF (UK) Group. EDF (UK) Group is one of the major components of EDF International SA, a wholly owned subsidiary of EDF. EDF has publicly stated that they are considering introducing external equity into EDF International SA but are expected to retain majority control and have recently reaffirmed their commitment to both the UK power market in general and to LE in particular.
Moody's expects that LE will be able to maintain a solid financial profile despite paying increased dividends. Moody's anticipates EBITDA to interest cover of over 5X, EBIT to interest cover of over 3.5X and debt to EBITDA of below 2.5X - all of which are adequate for a UK Regional Electricity Company rated A2. Moody's does not anticipate dividend cover falling below 4X. Moody's believes EDF and LE will continue to seek further UK acquisitions and smaller transactions - such as the acquisition of the SWEB supply business or Sutton Bridge - can be accommodated within the current rating position. Another substantial acquisition - such as the size of Cottam - will need a more careful reassessment of LE's financial position, and ability to meet increasing dividend requirements, without damaging its financial profile to an extent which would put pressure on the A2 rating.
London Electricity plc, headquartered in London, is one of the 12 Regional Electricity Companies of England and Wales. EDF, headquartered in Paris, France, is one of the largest electric utilities in the world.
No Related Data.
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