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Rating Action:

MOODY'S DOWNGRADES NUON TO A1, WHICH REMAINS ON REVIEW FOR FURTHER POSSIBLE DOWNGRADE

16 Jun 2003
MOODY'S DOWNGRADES NUON TO A1, WHICH REMAINS ON REVIEW FOR FURTHER POSSIBLE DOWNGRADE

London, 16 June 2003 -- Moody's Investors Service has today downgraded to A1 from Aa3 the senior unsecured ratings of n.v. Nuon (Nuon) and its guaranteed subsidiary Nuon Finance BV, and is maintaining the ratings on review for possible further downgrade. At the same time, Nuon's short-term P-1 rating was affirmed. This continues the review that was initiated on 20 February 2003 following the announcement that Nuon planned to acquire the Dutch generation assets of Reliant Resources Inc. This transaction is still awaiting antitrust approval.

The downgrade reflects the following factors:

(1) Weaker than expected 2002 results due to overall pressure on margins and a number of higher than expected costs and one-off items, such as those relating to the transfer to new customer systems and the impairments taken on a significant number of co-generation facilities.

(2) Moody's expects that intermediate pressure due to further liberalisation in the Dutch market could lead to continued pressure on margins and possible additional costs.

(3)Most of the major Dutch utilities, along with Nuon, have suffered system automation and integration problems as a result of phase 2 customer liberalisation, which led to payment backlogs and hence negative pressure on working capital and cash flow. Moody's understands that Nuon has achieved significant progress in this area, however we would expect greater clarity on this issue with the publication of 1H 2003 figures

(4) Given these pressures, and even without its proposed acquisition of Reliant Energy Power Generation Benelux BV(REPGB, rated B1), Nuon may find it difficult to maintain its target coverage of FFO/debt of 25% and FFO/gross interest of 5x. If this acquisition does not go ahead, then the company will remain with greater exposure to procurement risk. Nonetheless, most of Nuon's operating profitability continues to come from its relatively low-risk regulated monopoly network businesses.

In Moody's opinion, all of these issues together mean that Nuon's profile will be inconsistent with a Aa3 rating. The company's long-term senior unsecured rating remains on review for further possible downgrade, continuing the review that was initiated on 20 February 2003 following the announcement of Nuon's proposed acquisition of Reliant Resources Inc's European asset base, which is primarily composed of its generation portfolio located in REPGB, for around EUR985 million. This transaction is subject to the approval of antitrust authorities, which has not yet been obtained and may take a few more months. Whilst Moody's believes that approval is probable, the rating review is only likely to be resolved upon receipt of this confirmation and after further discussions with management with regard to their revised business plan. The rating review will take into account the expected additional debt levels as a result of the acquisition as well as the possible hedge that REPGB's generation portfolio should provide to Nuon's downstream supply risk. Moody's will also consider the financial and operating progress of both companies during 2003 as well as any further expansion plans of the company.

The affected ratings are:

- Senior unsecured Aa3 ratings assigned to EUR2 billion EMTN programme, and debt issued thereunder, were downgraded to A1 and remains on review for further possible downgrade.

- Senior unsecured Aa3 issuer rating was downgraded to A1 and remains on review for further possible downgrade.

The B1 rating of REPGB primarily reflects the operating risks that its current ultimate parent, Reliant Resources Inc (B3) faces. The rating also factors the uncertain nature of the ringfencing between the parent and its subsidiary. The outlook was changed from negative to positive on announcement of Nuon's intentions to purchase them in February. Once the deal has been concluded, it is likely that this rating will be upgraded at least to investment grade. Depending on Nuon's intentions and the future structure of its group, the rating could be moved much closer to that of the parent company.

n.v. Nuon is an electricity, gas and water company serving over 2.7 million customers in the Netherlands. As at 31 December 2002, it had consolidated sales of EUR4.4 billion.

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

London
Helen Francis
Vice President - Senior Analyst
European Corporates
Moody's Investors Service Ltd.
44 20 7772 5454

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