Approximately EUR18 billion of rated debt securities affected
London, 14 January 2009 -- Moody's Investors Service has today downgraded to Aa3 from Aa1 the
long-term senior unsecured debt and issuer ratings of Electricite
de France SA (EDF). At the same time, Moody's confirmed
the ratings of some of EDF's subsidiaries (see list below),
including the A3 senior unsecured debt and issuer ratings of EDF Energy
plc and EDF Trading Limited. The outlook on all the ratings is
stable. Moody's also upgraded to Baa3 from Ba3 the guaranteed
debt rating of British Energy Bond Finance plc (formerly British Energy
Holdings plc), and kept the rating on review for upgrade pending
clarification of legal and capital structure considerations. The
Ba2 corporate family rating of British Energy Group plc (British Energy)
was withdrawn, since this type of rating is not usually assigned
to companies with an investment-grade profile.
Today's rating actions follow the announcement last week that EDF's
GBP12.5 billion acquisition of British Energy, made through
its wholly-owned subsidiary, Lake Acquisitions Limited,
had become effective. They also factor in that EDF and Centrica
(rated A3/Prime-2) are continuing their discussions regarding Centrica's
option to acquire 25% of Lake Acquisitions, and EDF's
recent agreement to acquire 49.99% of Constellation Energy
Group's (CEG, rated Baa3, under review for downgrade)
nuclear assets for USD4.5 billion, which remains subject
to regulatory approval. These rating actions conclude the review
initiated by Moody's in September 2008 when EDF's offer for
British Energy was announced.
"The downgrade of EDF's ratings to Aa3 from Aa1 is prompted
by the increase in debt resulting from the estimated EUR13.2 billion
used to fund its acquisitions," explains Niel Bisset,
a Senior Vice President in Moody's Infrastructure Finance Group.
EDF remains about 85% owned by the French state and accordingly
EDF's ratings continue to benefit from a two-notch uplift
to the Aa3 senior unsecured rating.
"The downgrade also takes into account an expected increase in leverage
over the next few years given the prospect of negative free cash flow
as EDF carries out a substantial capital expenditure programme,"
adds Mr. Bisset. In Moody's view, EDF's
on-balance sheet debt will rise significantly over 2009-10
from the EUR18.2 billion reported at June 2008 (approximately EUR46
billion on an adjusted basis), due to both the acquisition debt
and capital expenditures that are not expected to generate meaningful
returns in the short term. Compared with 20% achieved in
2007 and Moody's current guidance of retained cash flow (RCF)/net
debt in excess of 20%, Moody's estimates that EDF's
RCF/net debt ratio is likely to decline to the low teens in 2009 and 2010
before recovering towards the mid-teens range from 2011.
The stable outlook assumes that, given its low business risk profile,
EDF will manage its leverage profile such that it will not deteriorate
beyond current expectations.
"Moody's recognises that both the British Energy and CEG acquisitions
are fully consistent with EDF's strategy and position EDF well for
the development of New Nuclear Build (NNB) in the UK and US,"
says Mr. Bisset. The acquisition of British Energy also
supports the integrated business model of EDF Energy, its UK subsidiary.
However, Moody's notes that British Energy's relatively
weak recent operational record, its ageing nuclear fleet and the
increased proportion of unregulated business within EDF could pose negative
business risks for EDF. "Overall, Moody's believes
the transactions will slightly increase the business risk profile of the
group, although not enough to change its current low assessment,"
says Mr. Bisset. "For the longer term, both
acquisitions highlight the importance to EDF's strategy of developing
its global NNB capability, which implies high up-front investment
and very long-term value creation with execution risks."
Although details are yet to be finalised, Moody's confirmation
of EDF Energy's A3 rating assumes that the position of the UK sub-group
within the UK energy sector should benefit overall from moving to long
from short generation. With regard to its positioning within the
EDF group, Moody's considers that EDF's commitment to
EDF Energy as an integrated business has been underscored by its significant
investment to acquire British Energy and that it remains appropriate to
incorporate an element of support in the assigned A3 rating.
Moody's confirmation of EDF Trading's A3 rating reflects its
central role and responsibility for EDF's wholesale market activity.
Although the rating of EDF as support provider has weakened as a result
of the British Energy acquisition, Moody's believes this is
offset by the fact that EDF Trading has become more integrated within
the group and has steadily extended its responsibility for asset optimisation,
as well hedging EDF's earnings.
The downgrade of EDF's ratings to Aa3 from Aa1 results from a change
of its Baseline Credit Assessment (BCA) to 6 (equivalent to an A2 rating)
from 4 (equivalent to a Aa3 rating), due to the higher leverage
arising from its acquisitions. As a Government related issuer (GRI)
EDF's ratings incorporate other GRI input factors, including
high support and medium dependence, assumptions which Moody's
maintains unchanged following the acquisition of British Energy,
and which result in the two-notch differential between the BCA
and the Aa3 senior unsecured rating. Moody's considers the
likelihood that support would be forthcoming for EDF to be at least as
great as it is for any French corporate that is not wholly-owned
by the state.
Today's rating actions led to the following downgrades:
-EDF SA: senior unsecured debt and issuer ratings,
to Aa3 from Aa1
The following ratings were confirmed:
-EDF Energy plc: A3 senior unsecured debt ratings
-EDF Energy Networks (LPN) plc: A2/Prime-1 senior
unsecured debt and issuer ratings
-EDF Energy Networks (EPN) plc: A2/Prime-1 senior
unsecured debt and issuer ratings
-EDF Energy Networks (SPN) plc: A3 senior unsecured debt
and issuer ratings
-EDF Trading Limited: A3 senior unsecured issuer rating
-EDF Energy (South East) plc: A3 senior unsecured issuer
rating
-EDF Energy Customers plc: A3 senior unsecured issuer rating
-SEEBOARD Energy Ltd: A3 senior unsecured issuer rating
The following ratings were not on review and were affirmed:
-EDF SA: the P-1 short-term rating
-EDF Energy plc: the P-2 short-term rating
-EDF Energy Networks (SPN) plc: the P-2 short-term
rating
-EDF Energy (South East) plc: the P-2 short-term
rating
The following rating was upgraded and kept on review for possible upgrade:
-British Energy Bond Finance plc (formerly British Energy Holdings
plc): the guaranteed debt rating, to Baa3 from Ba3
The previous rating action on EDF was implemented on 25 September 2008,
when Moody's placed EDF's Aa1 long-term senior unsecured
debt and issuer ratings on review for possible downgrade. The previous
rating action on British Energy was implemented on the same date,
when Moody's initiated a review for possible upgrade of the company's
Ba2 corporate family and probability of default ratings as well as of
the Ba3 guaranteed debt rating of British Energy Bond Finance plc (formerly
British Energy Holdings plc).
The principal methodologies used in rating these entities were The Application
of Joint Default Analysis to Government Related Issuers, published
in April 2005 and the Rating Methodology: Global Regulated Electric
Utilities, published in March 2005, which can be found at
www.moodys.com in the Credit Policy & Methodologies
directory, in the Ratings Methodologies sub-directory.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Credit Policy & Methodologies
directory.
Electricite de France SA is an integrated provider of electricity generation,
transmission, distribution, and supply services, and
the leader in its domestic French market. The company also has
a major presence in the international markets through ownership interests
in power utility operations in Europe (primarily Italy, UK and Germany)
and globally. In the nine months ended 30 September 2008,
EDF recorded revenues of EUR46 billion.
EDF Energy plc is an integrated electricity generation, distribution
and supply company, and is the largest UK regulated network owner.
The company has approximately 5.5 million customer accounts and
nearly 5,000 MW of generation. In the year to YE2007,
the company reported revenues of GBP6 billion and EBITDA of GBP0.9
billion.
British Energy Group plc is the largest power generator in the UK,
delivering around 20% of UK electricity demand from around 10.6
GW of installed capacity (83% of which is nuclear). In the
six months ended 30 September 2008, British Energy reported total
output of 22.7 TWh, revenues of GBP1,281 million and
adjusted EBITDA of GBP257 million.
London
Monica Merli
Managing Director
Infrastructure Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Niel Bisset
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades EDF to Aa3; British Energy upgraded to Baa3, still on review for upgrade
