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Rating Action:

Moody's downgrades Spanish electricity tariff deficit transactions

22 Apr 2013

Rating action affects non government guaranteed transaction

London, 22 April 2013 -- Moody's has today downgraded to Baa1(sf) from A3(sf) the ratings of the asset-backed securities (ABS) transactions backed by Spanish securitised electricity tariff deficits that the rating agency positions above the Spanish government Baa3 rating. The downgrades reflect the persisting uncertainty about the length and potential outcome of the Spanish energy reform measures, in the context of a higher electricity system deficit than originally anticipated by the Spanish government. Today's downgrade concludes the rating review that Moody's initiated on 2 July 2012 and extended on 15 November 2012 (see "Moody's comments on Spanish electricity tariff deficit transactions.")

The list of affected securities for the four issuers (Alectra Finance p.l.c., Bliksem Funding Limited, Delta SPARK Limited 2008-1 and Rayo Finance Ireland Limited) is provided further below in this press release.

RATINGS RATIONALE

Today's downgrades reflect the continued uncertainty surrounding the potential outcome of the Spanish energy sector reform process on the back of the persisting electricity system deficit. Regulatory risk remains, as further reform measures may be taken later this year, in order to eliminate tariff deficits in the future. As long as the tariff deficit remains high, there is a possibility that the protracted energy sector reform process may lead to measures that could weaken the terms of securitized tariff deficits, such as a transfer of these liabilities from the costs of the system onto the Treasury budget.

However, Moody's notes that the government did not take onto its books interest and principal annuities relating to past historical deficits of €2.2 billion, as originally proposed in September 2012 (see "Fiscal Reforms Are Credit Negative for Spain's Electricity Companies", 24 September 2012). Under the proposed measures, it was uncertain whether the payment rights related to securitised tariff deficits might become sovereign liabilities instead of their current status as fully secured obligations of the electric system guaranteed by law, which would be credit negative.

In addition, the Spanish parliament has passed measures worth €6.5 billion in 2012 to reduce the size of the deficit, despite being forced to introduce an amendment in December 2012 to waive the €1.5 billion tariff deficit limit for 2012 and zero limit for 2013, which was subsequently ratified by Parliament (see "Spain's high tariff deficit in 2012 is credit negative for Spain's electricity sector and tariff deficit securitizations", 10 January 2013). Yet, measures fell short of eliminating the 2012/13 tariff deficits and the latest estimate by the Energy National Commission (CNE) is that the 2012 deficit will total more than €5 billion and in all likelihood in the range of €5.5 billion. Further measures in 2013 amounting to €3 billion are designed to eliminate the remaining deficit.

However, measures may still be insufficient as demand declines and electricity prices vary. In a speech on 19 March 2013, the Secretary of State for Energy, Alberto Nadal, said that further measures were needed to ensure the end to tariff deficits (see "Spanish Utilities: Further Regulatory Reform Likely Despite Measures to Eliminate Tariff Deficit", 22 April 2013).

Moody's considers the assets backing the notes in the Spanish electricity tariff deficits to be high quality receivables, given their backing by laws and regulation. While Moody's no longer rates the notes at the Spanish country ceiling following today's action, it still rates them above the Spanish government and the FADE program due to the strength of these assets. The ratings capture risks that the transactions are exposed to, such as change of law risk, as well as country risks due to the domestic nature of the receivables.

Moody's rating methodology for the Spanish electricity tariff deficit transactions considers the strength of the specific legislation enacted to set forth the regulatory claims and the repayment mechanisms, the creditworthiness and strategic role of key counterparties, as well as change of law risks. For further information on the rating approach, please see the new issue reports publicly available for these transactions on Moody's website.

--Assumptions and sensitivity

Beyond the change of law risk assessment it described in this press release, Moody's has not updated key modeling assumptions, sensitivities, cash-flow analysis and stress scenarios for the affected transactions as the rating action was primarily driven by qualitative considerations related to regulatory uncertainty.

Electricity reforms that weaken the terms of the tariff deficit receivables, or a further weakening of the Spanish government creditworthiness, would negatively the credit quality of the asset backing the transactions.

Finally, as the euro area crisis continues, the rating of the structured finance notes remain exposed to the uncertainties of credit conditions in the general economy. The deteriorating creditworthiness of euro area sovereigns as well as the weakening credit profile of the global banking sector could negatively affect the ratings of the notes.

--List of Affected Ratings

Issuer: Alectra Finance p.l.c.

....EUR1197.05M A Notes, Downgraded to Baa1 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Placed Under Review for Possible Downgrade

Issuer: Bliksem Funding Limited

....EUR200M A Notes, Downgraded to Baa1 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Placed Under Review for Possible Downgrade

Issuer: Delta SPARK Limited 2008-1

....EUR1289.5M A Notes, Downgraded to Baa1 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Placed Under Review for Possible Downgrade

Issuer: Rayo Finance Ireland (No.1) Limited

....EUR75M Series 1 Notes, Downgraded to Baa1 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Placed Under Review for Possible Downgrade

....EUR507.633303M Series 2 Notes, Downgraded to Baa1 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Placed Under Review for Possible Downgrade

....EUR269.30872M Series 3 Notes, Downgraded to Baa1 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Placed Under Review for Possible Downgrade

....EUR439.269808M Series 4 Notes, Downgraded to Baa1 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Placed Under Review for Possible Downgrade

....EUR421.7M Series 5 Notes, Downgraded to Baa1 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Placed Under Review for Possible Downgrade

REGULATORY DISCLOSURES

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of these transactions in the past six months.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alix Faure
Asst Vice President - Analyst
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Carole Gintz
VP - Sr Credit Officer/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Ariel Weil
VP - Senior Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades Spanish electricity tariff deficit transactions
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