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Rating Action:

MOODY'S DOWNGRADES LONDON ELECTRICITY GROUP PLC DEBT RATINGS TO A3/P-2; ADJUSTS SUBSIDIARY RATINGS TO REFLECT DIFFERING RISK PROFILES; ASSIGNS NEGATIVE OUTLOOK TO LONG-TERM RATINGS

10 Apr 2003
MOODY'S DOWNGRADES LONDON ELECTRICITY GROUP PLC DEBT RATINGS TO A3/P-2; ADJUSTS SUBSIDIARY RATINGS TO REFLECT DIFFERING RISK PROFILES; ASSIGNS NEGATIVE OUTLOOK TO LONG-TERM RATINGS

London, 10 April 2003 -- Moody's Investors Service today downgraded the ratings of London Electricity Group plc (LEG) to A3/Prime-2 from A2/Prime-1. Various subsidiary ratings have simultaneously been upgraded, affirmed or downgraded in accordance with a reassessment of the relative credit risk profiles of the various rated entities within the group. A list of the individual rating actions appears below. The outlook on the long-term ratings is negative.

Today's rating actions conclude the review initiated on the various LEG group ratings on 29 November 2002 following the downgrade of LEG's ultimate parent, Electricite de France (EDF), to Aa3 with negative outlook from Aaa. That downgrade reflected a number of uncertainties that may impact EDF's credit profile, including the final resolution of its substantial unfunded pension liabilities in conjunction with the eventual loss of its "EPIC" status and the expected subsequent sale of a minority stake to the public.

All LEG group ratings benefit from modest enhancement resulting from being part of the EDF Group. However, uncertainties still remain as to the evolution of EDF's credit profile, which is reflected in the negative outlook on EDF's ratings and, following today's action, on the various LEG entities' long-term ratings. A decline in EDF's credit profile could impact the degree to which Moody's attributes future EDF support to the LEG group, the rating agency said. This is a key factor in the negative outlook that has been assigned to the long-term ratings.

The other LEG group ratings affected by today's rating actions are as follows:

- London Power Networks plc (LPN) -- A2/Prime-1 senior unsecured ratings affirmed;

- EPN Distribution Ltd -- senior unsecured ratings upgraded to A2 from A3;

- SEEBOARD Power Networks plc (SPN) -- long-term issuer rating upgraded to A3 from Baa1;

- London Electricity plc -- long-term issuer rating downgraded to A3 from A2;

- SEEBOARD Energy Ltd -- long-term issuer rating upgraded to A3 from Baa1;

- CSW Investments -- senior unsecured debt rating upgraded to A3 from Baa2;

- SEEBOARD plc -- long-term issuer rating upgraded to A3 from Baa1.

The debt ratings for LEG Holdings plc and EDF London Capital are being withdrawn as the obligations at those entities have been redeemed.

Moody's regards the various acquisitions completed in recent years as having strengthened the group's business mix. The acquisitions of EPN Distribution and CSW Investments have not only increased LEG's presence in the lower-risk distribution side of the UK power sector but also improved the relative balance of its retail supply and generation portfolio, mitigating to a certain extent the increased business risk in that area.

The ratings at the LEG parent (A3/Prime-2) reflect our view of the strength of the consolidated entity plus the impact of structural subordination to debt within the distribution companies, particularly with regard to the two distribution businesses, EPN and LPN, which have stronger intrinsic credit profiles. LEG also has access to cash flow distributions from the relatively higher business-risk unregulated supply and generation businesses that represent around one-third of the consolidated group's operating and retained cash flow. However, LEG has a proportionately higher reliance on cash flows from the stronger distribution businesses. Moody's does regard the additional cash flow from the unregulated generation and supply businesses as providing cash flow diversification in support of parent company obligations.

In its ratings assessment of the individual entities within the LEG group, Moody's has made a distinction between the regulated and unregulated businesses.

On the regulated side there are three UK regulated electricity distribution businesses with low business risk profiles: LPN, EPN and SPN. The A2 ratings of LPN and EPN reflect continuing adequate credit metrics, with a ratio of Net Debt to Regulatory Asset Value in the mid-50% range and a Retained Cash Flow to Net Debt ratio in the mid to high teens providing sufficient financial flexibility within those entities for supporting parent company obligations.

Moody's decision to upgrade the ratings of the third distribution business, SPN (acquired in mid-2002 as part of the SEEBOARD acquisition), to A3 from Baa1 reflects its slightly weaker credit profile compared to the other A2-rated distribution businesses, LPN and EPN, though in the context of being now part of the LE Group. SPN has a Net Debt to Regulatory Asset Value ratio in the 70% range and Retained Cash Flow to Net Debt in the mid teens, reducing on a comparable basis its degree of financial flexibility for supporting parent company obligations.

The A3 ratings assigned to some of the unregulated entities within the group reflect Moody's decision to factor into its assessment the intercompany support arrangements being established by LEG in favour of the two higher business-risk rated supply businesses -- London Electricity plc and SEEBOARD Energy plc -- as well as CSWI and SEEBOARD plc, the holding companies for the various SEEBOARD businesses acquired last year. LEG is establishing irrevocable and unconditional guarantees in favour of bondholders at CSW Investments and keepwell agreements in favour of London Electricity plc, SEEBOARD plc and SEEBOARD Energy Ltd. The terms of the keepwells stipulate that they cannot be terminated while obligations remain outstanding and while the entities remain within the group, and that if amended or terminated, at least 30 days written notice must be given. Without these support arrangements, the credit risk profiles of these individual entities would be weaker than that of LEG.

The following is a summary of the current ratings of London Electricity Group plc and its subsidiaries:

London Electricity Group plc

- Long-term senior unsecured debt rating A3, negative outlook

- Short-term senior unsecured debt and commercial paper rating Prime-2

London Power Networks plc

- Long-term senior unsecured debt rating A2, negative outlook

- Short-term senior unsecured debt rating Prime-1

EPN Distribution Ltd

- Long-term senior unsecured debt rating A2, negative outlook

SEEBOARD Power Networks plc

- Long-term issuer rating A3, negative outlook

London Electricity plc

- Long-term issuer rating, A3, negative outlook

SEEBOARD Energy Ltd

- Long-term issuer rating A3, negative outlook

CSW Investments

- Long-term senior unsecured debt rating A3, negative outlook

SEEBOARD plc

- Long-term issuer rating A3, negative outlook

London Electricity Group Holding plc

- Rating withdrawn

EDF London Capital LP

- Rating withdrawn

London Electricity plc, headquartered in London, is a vertically integrated UK utility with three distribution networks, a customer base of over 5 million in the southern England and London area and three power plants with a total installed capacity of 5.2GW. It reported group turnover of GBP2.8 billion for the year ended 31 December 2002.

EDF, headquartered in Paris, France, is the largest electricity utility in Europe. For the year ending December 2002, the EDF group reported consolidated revenues of around EUR48 billion.

London
Stuart Lawton
Managing Director
European Corporate Finance
Moody's Investors Service Ltd.
44 20 7772 5454

London
David G. Staples
Senior Vice President
European Corporate Finance
Moody's Investors Service Ltd.
44 20 7772 5454

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