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02 Feb 2006
MOODY'S CONFIRMS NUON'S A2/P-1 RATINGS; STABLE OUTLOOK
London, 02 February 2006 -- Moody's Investors Service today confirmed the A2/P-1 ratings
of nv Nuon ("Nuon") and its guaranteed subsidiary, Nuon
Finance BV, with a stable outlook. The A3 rating of its generation
subsidiary, Nuon Power Generation BV ("Nuon Generation"),
has also been confirmed, but with a negative outlook. These
rating actions conclude the review for possible upgrade that was initiated
on 23 June 2005 as a result of the application of Moody's rating
methodology for government-related issuers ("GRIs").
Nuon and its guaranteed subsidiary are considered GRIs because of Nuon's
100% ownership by a number of Dutch provinces and municipalities.
Nuon Generation is not considered a GRI because it is one step removed
from these ultimate owners.
The ratings assigned to Nuon and its guaranteed subsidiary reflect the
following key rating inputs under the GRI methodology:
- Baseline Credit Assessment ("BCA") of 3 (on a scale
of 1 to 6, where 1 represents the lowest risk)
- Ownership by multiple unrated Dutch regional and local governments
- Low Support
- Low Dependence
Nuon's BCA, which is soundly positioned in the 3 category,
reflects its moderate operating risk based on its vertically integrated
structure and its position as one of the Netherlands' leading utilities.
At the same time it recognises the solid and rapidly improving financial
strength of the company, following significant debt reduction in
2005. This financial profile would normally be more consistent
with at least a high single-A utility. However, the
rating also factors the following event risks:
1) The near-term uncertainty caused by the 'unbundling'
proposal to split network activities from other commercial activities,
which is currently under debate in the Dutch Parliament, and the
increasing likelihood that this will be approved. A resolution
is likely to be reached during the first half of 2006.
2) Concern that changes in legislation could give cause for termination
under some of the cross-border leases, which could have a
financial or liquidity impact.
3) Uncertainty over the possible future capital structure of the company
(or future separated companies) in the event of unbundling. Nonetheless,
whilst Nuon opposes the proposed restructuring, it has indicated
that, should it go ahead, it would be logical for nv Nuon
and Nuon Finance BV to stay with the grid company (where the guaranteed
cross-border leases are located). Therefore the majority
of debt, including public bonds, would also be likely to be
attached to the lower-risk network entities, rather than
the higher-risk commercial activities.
Low support is attributed driven jointly by the company's multiple
ownership structure, the current unbundling proposal and the stringent
regulatory framework for Dutch regional and local governments --
all of which could impede financial support being provided in full and
on a timely basis.
Dependence is low due to the fact that Nuon and its shareholders have
very different operating environments and unrelated revenue structures.
The current rating outlook is stable. Whilst the support level
is low, it is not inconsequential and provides stability to the
ratings which mitigates the significant near-term uncertainties
which would otherwise weigh more heavily on the BCA given the increased
likelihood of a demerger.
Developments that could have negative implications for Nuon's current
solid positioning within the BCA of 3 include: (i) an unbundling
scenario in which the rated debt is moved to the demerged network company,
and management were to choose a much more leveraged profile for the entity
than at present, particularly if this were to be combined with continuing
uncertainty with regard to early termination of cross-border leases,
and (ii) a scenario in which, against expectations, rated
debt was transferred to commercial activities.
However, in such instances, a downwards shift in the positioning
of the BCA within the 3 category would not likely lead to a downgrade
in the final rating provided Moody's perception of support remained
the same as at present. Nonetheless, if the BCA were to deteriorate
to a 4 (albeit considered rather remote for a future network company)
and/or Moody's were to perceive support as having significantly
weakened, a rating downgrade would be a possibility.
Positive rating pressure may occur in the following scenarios:
(1) The current "unbundling risk" from Nuon and the Dutch
industry as a whole is eliminated.
(2) Low debt levels are assigned to a potential future network company.
In both scenarios (1) and (2), upward rating pressure would also
be dependent on Moody's reassessment of financial and business risk
in light of management strategy, corporate structure, regulatory
developments and risks associated with cross-border leases at the
(3) Moody's perceives support for the company as having increased.
The A3 rating of Nuon Generation reflects its position as a wholly owned
and integrated generation subsidiary of Nuon, one of the Netherlands'
four major generators, with a natural guaranteed offtake through
the downstream supply business of the Nuon group. The company has
limited debt. Whilst the rating recognises the sound quality of
the company's assets, it nonetheless incorporates its higher-risk
business profile compared to its parent's diversified operating
risk. The negative outlook on this rating reflects the potentially
increased business risk that could develop if, as a result of unbundling,
the company were no longer part of an integrated energy group and/or its
debt were to increase.
The ratings affected by today's rating actions are as follows:
- The senior unsecured long-term A2/P-1 ratings assigned
to the EUR2 billion EMTN programme of Nuon Finance BV, under the
guarantee of n.v Nuon, and all debt issued thereunder.
- n.v. Nuon's senior unsecured A2/P-1
- Nuon Power Generation BV's A3 issuer rating.
Headquartered in Amsterdam, n.v. Nuon is an electricity
and gas company serving over 2.7 million customers in the Netherlands.
For the year ending 31 December 2004, it had consolidated sales
of EUR4.9 billion.
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Vice President - Senior Analyst
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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