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04 Apr 2007
Moody's downgrades E.ON to A2, stable outlook; subsidiaries' ratings confirmed
London, 04 April 2007 -- Moody's Investors Service has today downgraded to A2 from Aa3 the senior
unsecured rating of E.ON AG ("E.ON"/the Company),
following the Company's announcement that it has signed an agreement
with Enel and Acciona in relation to Endesa. The outlook assigned
to the rating is stable. The downgrade concludes the rating review
initiated on 22 February 2006, following E.ON's announcement
of its first all-cash offer to acquire 100% of the shares
of Endesa. At the same time, Moody's has confirmed
E.ON's short-term Prime-1 rating as well as
the existing ratings of E.ON's subsidiaries, which
had been on review for possible downgrade.
E.ON's A2 rating takes account of the Company's stated
investment plan and its plans to acquire assets from Enel and Acciona.
This scenario would likely result in a weak A1 rating, but Moody´s
has assigned the A2 rating which allows headroom in case E.ON makes
additional acquisitions or investments or seeks to enhance shareholders
returns, through some additional return of cash to investors.
The downgrade to A2 follows the Company's announcement on 2 April
2007 that it has signed an agreement with Enel and Acciona to end the
uncertainty surrounding its bid for Endesa. The terms of the agreement
with Enel and Acciona mean that E.ON will not be proceeding with
its takeover bid for Endesa, the original aim of which was to acquire
a majority stake in the latter, and will not acquire the shares
tendered in response to its offer in the likely event that less than 50%
of Endesa's shares are tendered. The Company has also undertaken
not to make a new takeover for Endesa in the next four years.
Instead, under the terms of the agreement with Enel and Acciona,
E.ON will acquire a significant portfolio of assets in Spain,
Italy and France, as well as assets in Poland and Turkey,
if Enel and Acciona successfully gain control of Endesa. Moody's
understands that the total value of these assets is in the region of EUR10
billion, and that the exact consideration will be determined,
in due course, using generally accepted fair value methods.
Moody's notes that, whilst the cost to E.ON of acquiring
the above-mentioned assets from Enel/Acciona has yet to be determined,
it would seem very likely to be significantly less than the cost of acquiring
a majority stake in Endesa and will require considerably less financing.
In terms of the Spanish assets that E.ON will acquire under the
agreement with Enel and Acciona, Enel has agreed to sell Viesgo,
the power utility, to E.ON. Moreover, E.ON
will also acquire some additional Spanish generation capacity from Endesa.
By 2010, E.ON expects that its total Spanish power plant
capacity will give it a balanced energy mix of approximately 6,400
megawatts and, with a market share exceeding 10%, will
become the fourth-largest player in the Spanish market.
At that point, E.ON's energy operations in Spain will
be broadly as large as its operations in Northern Europe.
In Italy, the plan is that E.ON will acquire Endesa Italia,
which has approximately 5,000 megawatts of generation capacity,
and will see E.ON become the fourth-largest power producer
in that country. The scale of E.ON's enlarged Italian
operation will also be similar to that of its Northern European business.
The fact that E.ON already has wholesale electricity and gas trading
and gas sales operations in Italy means that there are potential synergies
with Endesa Italia. In France, Enel and Acciona will sell
Endesa France/SNET to E.ON, which will make E.ON the
third-largest player in the French electricity generation sector.
In addition to Enel and Acciona achieving majority control of Endesa,
the sale of these assets by the former two parties to E.ON is also
subject to the above-mentioned agreement being approved by the
Endesa group and to the necessary regulatory approvals being forthcoming.
In Moody's view, the A2 rating with stable outlook reflects
Moody´s perceived long-term strategic positioning of the
Company and some event risk given E.ON's stated ambition to become
one of the leading integrated power and gas operators in the world and
its stated commitment is to maintain an A2 rating. The Enel/Acciona
assets acquisition, taken with E.ON´s existing published
investment plans, would suggest a weak A1 rating. There are
still some risks to the plan to acquire assets from Enel and Acciona,
but Moody's assumes the Company will increasingly use its financial
resources and flexibility to substantially expand its asset base through
capital expenditure and further investment and acquisition opportunities.
Moody's further assumes there is a possibility that E.ON
would consider additional returns of cash to shareholders. There
would not be significant headroom with an A1 rating, so Moody´s
assigned an A2 rating given the rating agency's assumption of further
actions by E.ON.
The ratings of E.ON's subsidiaries Powergen Ltd, E.ON
UK plc, Avon Energy Partners Holdings, Powergen (East Midlands)
Investments and Powergen US Holdings were confirmed, thereby concluding
the review for downgrade initiated in February 2006, reflecting
their stand-alone financial profile and the continued support available
from their parent E.ON.
Following the conclusion of the review, Moody's has downgraded
the following ratings (all outlooks stable):
- E.ON AG: senior unsecured from Aa3 to A2.
- E.ON International Finance BV: backed senior unsecured
from Aa3 to A2.
- E.ON UK Finance plc: backed senior unsecured from
Aa3 to A2.
- E.ON UK Holding Co Ltd: backed senior unsecured
from Aa3 to A2.
Moody's has confirmed the following ratings:
- E.ON AG: Prime-1 commercial paper.
- E.ON UK Holding Co Ltd: Prime-1 backed commercial
- Powergen Ltd: A3 long-term issuer rating.
- E.ON UK plc: A3 long-term issuer rating and
A3 senior unsecured.
- Avon Energy Partners Holdings: A3 senior unsecured.
- Powergen (East Midlands) Investments: A3 long-term
issuer rating and A3 senior unsecured.
- Powergen US Holdings Ltd: A3 long-term issuer rating.
Headquartered in Düsseldorf, Germany, E.ON AG
is Europe's largest investor-owned utility by market value,
with a capitalisation of approximately EUR75 billion. In 2006,
the company recorded revenues of EUR64.2 billion and adjusted EBITDA
of EUR11.4 billion.
VP - Senior Credit Officer
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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