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Rating Action:

Moody's affirms EnBW's A3/P-2 ratings; negative outlook

13 Feb 2016

London, 13 February 2016 -- Moody's Investors Service has today affirmed the A3/Prime-2 senior unsecured ratings, and the Baa2 subordinated debt rating, of EnBW Energie Baden-Wuerttemberg AG ('EnBW' or 'the group'), and its guaranteed subsidiary EnBW International Finance B.V.. The outlook on all ratings is negative.

A full list of affected ratings is provided towards the end of this press release.

RATINGS RATIONALE

The rating affirmation follows a review by the rating agency of EnBW's exposure to a weakening price environment. Forward baseload prices in Germany have declined by more than 20% in the last three months, reflecting a decline in commodity prices, notably coal and CO2 which dropped by 20% and 33% during the same period respectively. Current one-year forward baseload prices of around EUR23/MWh are below Moody's estimates published in June 2015 of a EUR30-35/MWh range over 2015.

The rating affirmation reflects EnBW's strong financial profile as compared to Moody's guideline metrics for its current rating category of A3 and the expectation that the company will likely maintain sufficient flexibility to accommodate exposure to weaker earnings from generation as a result of low power prices.

EnBW has a mixed portfolio of nuclear, lignite, hydro, coal/gas and a small amount of other technologies such as wind and pumped storage. In 2014, around 51% of capacity and 68% of output was exposed to outright power prices. Moody's expects earnings from generation to deteriorate over the next two or three years as hedges roll off, although it expects the company to adopt cost cutting measures to mitigate the effect. The earnings reduction could be more rapid than envisaged in EnBW's strategic plan, which already anticipates annual generation EBITDA reducing from EUR1.2 billion in 2012 to EUR300 million in 2020.

As at end-2014, EnBW reported FFO/net debt of 24.3% and RCF/net debt of 20.5% and in 2015 metrics should improve as broadly stable EBITDA and disposals will likely result in lower debt. As a result its financial profile is expected to be well positioned against current guidance for the A3 rating of FFO/net debt of more than 20%, and RCF/net debt in the mid to upper teens in percentage terms. Moody's expects that the company's financial profile in 2016/17 will weaken as lower generation earnings are not yet fully compensated by growth in other businesses, but should still remain within guidance.

The rating also takes into account of EnBW's scale and leadership position as a vertically integrated utility within Baden-Wuerttemberg, and its stable and predictable cash flows from low risk regulated networks which makes up around 40% of adjusted group EBITDA ("EBITDA"), and, to a smaller extent, from contracted generation such as renewables. This contribution should rise as a result of significant investments in infrastructure and its recent agreement to acquire VNG, if executed.

Given its 46.75% ownership by the Land of Baden-Wuerttemberg, EnBW's A3 rating is based on Moody's rating methodology for Government-Related Issuers (GRI) updated in October 2014. It reflects the company's baa1 stand-alone credit quality, or Baseline Credit Assessment (BCA), combined with one notch uplift for potential support by the regional government.

RATING OUTLOOK

The company currently has a negative outlook. There is a degree of uncertainty in relation to the outcome of deliberations by the government-appointed nuclear commission to consider a partial or full externalization of funding to cover the industry's nuclear obligations, which would be backed by contributions from the generators. Moody's believes that a pragmatic solution is sought; nonetheless key considerations will be the pace and scale of any such funding, in addition to any residual exposure to the somewhat unquantifiable risks relating to final storage.

The negative outlook also factors in a degree of execution risk in relation to EnBW's plan to rapidly increase the contribution from renewables and other businesses.

WHAT COULD MOVE THE RATING UP/DOWN

Given the challenges in the energy market in Germany, an upgrade of EnBW's ratings is unlikely in the medium term. However, evidence that EnBW remains on track to meet the guidance for the current rating could result in a stabilisation of the outlook (FFO/net debt of more than 20%, and RCF/net debt in the mid to upper teens in percentage terms). Stabilisation is also likely to depend on a reasonably benign resolution to the nuclear funding issue.

Conversely, negative pressure on EnBW's ratings could arise in the event of (1) a significant requirement to contribute to an external fund for nuclear liabilities, weaker than expected operating performance or more substantial investment spending than currently planned, that resulted in weak credit metrics against guidance for the A3 rating or (2) a weakening of the supportive stance of the Land Baden-Wuerttemberg.

PRINCIPAL METHODOLOGY

The methodologies used in these ratings were Unregulated Utilities and Unregulated Power Companies published in October 2014 and Government-Related Issuers published in October 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of these methodologies.

LIST OF AFFECTED RATINGS

Issuer: EnBW Energie Baden-Wuerttemberg AG

..Affirmations:

.... LT Issuer Rating , Affirmed A3

.... ST Issuer Rating , Affirmed P-2

....Senior Unsecured MTN, Affirmed (P)A3

....Senior Unsecured MTN, Affirmed (P)P-2

....Subordinate Regular Bond/Debenture , Affirmed Baa2

Issuer: EnBW International Finance B.V.

..Affirmations:

....BACKED Senior Unsecured MTN, Affirmed (P)A3

....BACKED Senior Unsecured MTN, Affirmed (P)P-2

....BACKED Senior Unsecured Regular Bond/Debenture Affirmed A3

Outlook Actions:

....Outlook, Remains Negative

REGULATORY DISCLOSURES

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Helen Francis
Vice President - Senior Analyst
Infrastructure Finance Group
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

Neil Griffiths-Lambeth
Associate Managing Director
Infrastructure 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 affirms EnBW's A3/P-2 ratings; negative outlook
No Related Data.
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