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29 Nov 2002
MOODY’S DOWNGRADES EDF’S DEBT RATINGS TO Aa3 FROM Aaa; REVIEWS FOR POSSIBLE DOWNGRADE RATINGS OF VARIOUS EDF-OWNED ENTITIES INCLUDING LONDON ELECTRICITY GROUP AND EDF TRADING
Moody’s Investors Service downgraded the long-term issuer and debt ratings of Electricité de France (EDF), and the ratings of debt guaranteed by EDF, to Aa3 from Aaa. The rating action concludes the review initiated in July 2002 and is based on Moody’s expectation that the company will lose its “EPIC” status sometime in 2003 and that a minority stake in its capital will be opened up over the medium term. The rating outlook is negative, reflecting a number of uncertainties including that surrounding the final solution to EDF’s substantial underfunded pension liabilities.
The rating agency also placed on review for possible downgrade the A2 long-term issuer and debt ratings and the Prime-1 short-term ratings of London Electricity Group plc (LEG), London Electricity plc and London Power Networks plc and the A3 junior subordinated debt rating of EDF Capital. The A3 debt ratings of EPN Distribution, the Baa2 debt ratings of CSW Investments and the Baa1 issuer and debt ratings of Seeboard entities, all currently on review for possible upgrade, are placed on review with direction uncertain. Moody’s also placed on review for possible downgrade the A1 issuer rating of EDF Trading. To date, the ratings of these entities have been supported by the superior credit quality of EDF, the parent of both LEG and EDF Trading, and Moody’s considers it appropriate to review these ratings in light of today’s downgrade. Moody’s noted, however, that EDF Trading’s liquidity and operational performance remain strong.
EDF’s ratings are underpinned by its strong business profile derived from the company’s pre-eminent position in France, supported by a favourable political and regulatory environment. Moody’s believes that EDF will remain a company of high national importance even when partially privatised, and understands that the State will maintain at least a 51% ownership for the foreseeable future.
Post EPIC, Moody’s expects EDF to concentrate on Western Europe (France, UK, Germany, Spain and Italy) as its core markets. The company has announced a reduced budget for future expansions, with an emphasis on realising value from existing investments and furthering its position in the gas sector. Moody’s believes that the company would contemplate asset sales outside its strategic geographic region.
The expected change in legal status will remove the current level of bondholder protection and, as highlighted by Moody’s in the past, there will be no grandfathering of existing debt. EDF’s strong business fundamentals are partially offset by a weakened financial profile during the last few years, resulting from pressure on gross margins in France, a high amount of non-compensated mandatory costs, increased group debt and the company’s increasing non-French activities, in particular the poor performance of its investments in Latin America. Looking ahead, continuing liberalisation of the EU energy markets, as recently agreed upon by EU governments, may eventually have further impacts on EDF’s market environment, Moody’s said. Nevertheless, EDF remains a strong cash flow generator with sizeable positive free cash flows, and spending on external growth is expected to remain limited to internally generated cash flows including disposal proceeds.
Moody’s believes there is considerable uncertainty surrounding the resolution of EDF’s largely unfunded long-term liabilities. It is estimated that the company’s current pension obligations are in excess of EUR40 billion, and its total nuclear liabilities are reported to be EUR27.9 billion on an undiscounted basis (French GAAP).
With respect to pension liabilities, tri-partite negotiations between EDF, the French government and unions are currently under way, and a solution is due to be reported on by June 2003. Moody’s believes that parts of the pension liabilities will not remain with the company. In Moody’s opinion, the most probable outcome would be a combination of different measures, including a mixture of up-front and deferred payments by EDF, and that all this will be done in the wider context of the opening-up of EDF’s capital. The current ratings factor only a certain portion of pension liabilities, and hence it is likely that further negative ratings pressure will occur depending on the final obligations that remain with the company.
Moody’s notes the very long-term nature of the company’s nuclear liabilities, with many of them only expected to lead to cash outflows well beyond 2020. EDF has put in place a long-term funding plan to build up an annuity to cover decommissioning and final storage costs. Moody’s believes there is considerable uncertainty surrounding the ultimate amount and timing of cash payments related to these liabilities.
The following ratings are affected as a result of this announcement:
Electricité de France
- Aaa long-term issuer rating, senior unsecured MTN and debt ratings, backed senior unsecured MTN and debt ratings downgraded to Aa3, negative outlook
- Prime-1 commercial paper and backed commercial paper affirmed
London Electricity Group Holdings plc
- A3 long-term junior subordinated debt placed on review for possible downgrade
London Electricity Group plc
- A2 long-term senior unsecured debt placed on review for possible downgrade
- P-1 short-term senior unsecured commercial paper placed on review for possible downgrade
London Electricity plc
- A2 long-term issuer rating placed on review for possible downgrade
London Power Networks plc
- A2 long-term senior unsecured debt placed on review for possible downgrade
- P-1 short-term senior unsecured debt placed on review for possible downgrade
EPN Distribution Ltd
- A3 senior unsecured debt (on review for upgrade) placed on review with direction uncertain
EDF London Capital
- A3 backed preferred stock placed on review for possible downgrade
CSW Investments plc
- Baa2 senior unsecured debt (on review for upgrade) placed on review with direction uncertain
- Baa1 senior unsecured debt (on review for upgrade) placed on review with direction uncertain
- P-2 short-term debt (on review for upgrade) placed on review with direction uncertain
Seeboard Power Networks plc
- Baa1 long-term issuer rating (on review for upgrade) placed on review with direction uncertain
Seeboard Energy Ltd
- Baa1 long-term issuer rating (on review for upgrade) placed on review with direction uncertain
EDF Trading Limited
- A1 long-term issuer rating placed on review for possible downgrade
IEB Finance S.A.
- Aaa backed senior unsecured debt downgraded to Aa3, negative outlook
EDF, headquartered in Paris, France, is the largest electricity utility in Europe. As per December 2001, the EDF group had consolidated revenues of EUR40.7 billion.
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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