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Announcement:

Moody's: No rating impact from TEPCO's corporate restructuring

 The document has been translated in other languages

01 Apr 2016

Tokyo, April 01, 2016 -- Moody's Japan K.K. says that the corporate restructuring now taking place at Tokyo Electric Power Company, Incorporated (TEPCO) will have no impact on its associated ratings.

On April 1, 2016, TEPCO splits itself as planned into Tokyo Electric Power Company Holdings, Inc. (TEPCO HD, Ba3 Corporate Family Rating, stable) -- by which TEPCO is renamed as a holding company -- and three subsidiaries: TEPCO Fuel & Power, Incorporated (F&P), focused on fuel and thermal power generation; TEPCO Power Grid, Incorporated (PG), focused on transmission and distribution; and Tokyo Energy Partner, Incorporated (Retail), focused on retail sales.

"Under the four-way split, TEPCO HD will house the assets associated with the nuclear, hydro, and renewable power generation businesses, as well as the obligations related to the accident with Fukushima Daiichi Nuclear Power Plant," says Motoki Yanase, Moody's Vice President - Senior Analyst.

"Moreover, these obligations will continue to weigh on TEPCO HD's overall long-term credit profile," says Yanase.

The existing public bonds at TEPCO HD will be backed by intercompany bonds issued by the financially stronger PG, with general security over PG's own assets. PG operates in a regulated environment and benefits from a credit-supportive cost recovery system.

The intercompany bonds will be held by a trust, an arrangement which is designed to prevent commingling risk in the event of a TEPCO HD's default.

This should also allow the group to maintain probability of default and recovery levels for existing senior secured bondholders that had been the case in the pre-restructure arrangement, and which Moody's had announced in our press release and report on May 1, 2015.

Press Release: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_323453

Report: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1004761

Moody's expects that the intercompany bond agreements will rank pari passu with any new public senior secured bonds issued in the future by PG.

TEPCO's Swiss franc-denominated public bond due March 2017 -- which is smaller than the existing yen-denominated bonds (CHF300 million or about JPY25 billion) -- will also be backed by a separate intercompany bond issued by the transmission and distribution subsidiary to TEPCO HD and the will be placed under a self-settled trust at TEPCO HD, along with the direct upstream guarantee from PG.

Moody's will continue to observe the evolution of the group following its April 1, 2016 restructure and any subsequent credit developments that may lead to either a strengthening or weakening in the credit quality of the group or separately rated subsidiaries or instruments within the group.

Moody's understands that a key goal of the restructuring is the facilitation of the group's new bond issuance plans and that the group remains in the process of confirming key operational issues that could best reflect its aims.

As such, Moody's will monitor the restructuring for any ring-fencing arrangements that would distinguish the credit quality of PG, in particular, as well as other newly created subsidiaries and which, in turn, may impact any of our ratings.

Moody's will also consider any implications for credit quality resulting from any initiatives taken by the group to strengthen or enhance credit quality at a stand-alone subsidiary level. Such factors could include the extent of operational and managerial independence as well as the stand-alone financial integrity of a particular subsidiary.

Upward rating pressure on TEPCO HD's Ba3 corporate family rating could emerge if Moody's concludes that the company can achieve both sustainable and appropriate profitability and financial metrics, owing to (1) the continued commitment and support of the Japanese government (A1 stable) and creditors; (2) increased clarity on profitability in Japan's future deregulated electricity market; and (3) improvements in TEPCO's cost base once the nuclear reactors at its Kashiwazaki-Kariwa power plant restart.

TEPCO HD's corporate family rating could face downward pressure if the group's margin or cash flow coverage weakens due to competition in the deregulated electricity market, if adverse changes occur in relation to the government's support for the group, or the timing for a restart of its nuclear power plants becomes even more protracted.

The ratings could also be impacted by any change in the rating or outlook of the Government of Japan, or our assessment of any negative changes in government-related issuer (GRI) factors.

The principal methodology used in these ratings was Regulated Electric and Gas Utilities (Japanese) published in February 2014. Other methodologies used include the Government-Related Issuers methodology (Japanese) published in November 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of these methodologies.

Headquartered in Tokyo, Tokyo Electric Power Company Holdings, Inc., is the holding company of the largest power company group in Japan with consolidated revenues of JPY6.8 trillion and an electricity sales volume of 257.0 billion kWh for the fiscal year that ended in March 2015.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Mariko Semetko
Vice President - Senior Analyst
Corporate Finance Group
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 813-5408-4110
SUBSCRIBERS: 813-5408-4100

Ian Lewis
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 813-5408-4110
SUBSCRIBERS: 813-5408-4100

Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 813-5408-4110
SUBSCRIBERS: 813-5408-4100

Moody's: No rating impact from TEPCO's corporate restructuring
No Related Data.
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