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
Seeboard plc
- 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.
© 2023 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.
MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.
All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the credit rating process or in preparing its Publications.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.
Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service, Inc. and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at
www.moodys.com under the heading “Investor Relations — Corporate Governance — Charter Documents - Director and Shareholder Affiliation Policy.”
Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.
Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.
