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Global Credit Research - 08 Sep 2010
Approximately USD1.1 billion of rated debt affected
London, 08 September 2010 -- Moody's Investors Service has today downgraded to A3 from A2 (with negative
outlook) the long-term senior unsecured debt ratings of EVN AG
("EVN"). The outlook is stable.
The downgrade reflects Moody's view that the implementation of the
company's sizeable mid-term investment programme will result
in a projected financial profile inconsistent with the previous A2 rating,
particularly considering the shift in the company's business risk profile
as a result of its increasing exposure to higher risk markets.
Whilst Moody's expects that most of EVN's cash flows will continue
to be generated in its core market of Lower Austria and has taken into
account the planned 10% capital increase announced by EVN in June
2010, which is expected to take place in the second half of 2010,
the rating agency has concluded that the company's prospective credit
metrics are unlikely to be within the guidance indicated for the previous
Over the past few years, EVN has implemented a relatively aggressive
internationalisation strategy, mainly focused on expanding into
the developing Eastern and South-eastern European markets.
In particular, the company holds material operations in Bulgaria
and Macedonia, focusing on electricity distribution and supply activities
which, whilst mainly regulated, present a higher level of
risk related to the evolving and less stable nature of their regulatory
frameworks. EVN is also increasingly committed to expanding its
presence in Albania, where the company has recently announced joint
ventures with the Austrian generator Verbund (rated A2 with negative outlook)
and the Norwegian energy company Statkraft (rated Baa1 with stable outlook)
in respect of the construction of hydro plants in the country.
In addition, as part of its environmental activities division,
EVN is currently present in 15 countries in Central and Eastern Europe.
As a result, the share in overall consolidated cash flows that is
derived from low risk and stable electricity and gas distribution activities
in EVN's domestic market has decreased proportionally from historically
Taking into account Moody's assessment of EVN's business risk
profile, which reflects the growing importance of the riskier international
operations, the rating agency expects EVN to exhibit the following
ratios (taking into account Moody's adjustments) on a sustainable
basis to support the current A3 ratings: FFO interest coverage ratio
of 4.5-5.5x, FFO / Net Debt of 20-25%
and RCF / Net Debt of 15-20%.
The outlook associated with EVN's ratings is stable, reflecting
Moody's expectation that EVN will exhibit a financial profile in
line with the ratio guidance for the A3 rating, when taking into
account the planned capital increase. However, Moody's
cautions that any material additional debt-funded investment in
excess of the current capital programme could reduce the company's
financial flexibility at current rating levels and limit its ability to
absorb the challenges of a volatile power price environment or potential
regulatory/political risks in EVN's international operations.
An improved financial profile, supported by ratios of FFO / Net
Debt and RCF / Net Debt in excess of 25% and 20%,
respectively, could put upward pressure on the ratings. However,
in light of EVN's sizeable investment programme over the period 2010-2013,
and the associated increasing contribution from higher risk activities
and/or markets, Moody's does not envisage any upward rating pressure
in the near term.
On the basis of EVN's current business risk profile and strategy,
downward rating pressure could develop if EVN's financial profile
were to deteriorate below the minimum parameters for the ratings,
including FFO / Net Debt below 20% and RCF / Net Debt below 15%
on a sustainable basis.
In light of EVN's 51% ownership by the province of Lower
Austria, the company falls under Moody's rating methodology
for government-related issuers ("GRIs"). As
a reflection of the considerations discussed above, Moody's has
revised downward one of EVN's GRI rating inputs - the Baseline
Credit Assessment ("BCA"), which represents the company's
stand-alone credit quality -- to 8 from 7 ( on the scale of
1-21, 8 is equivalent to the Baa1 category). The other
GRI rating inputs for EVN are as follows: (1) the Aaa rating of
the province of Lower Austria; (2) Moody's assessment of a moderate
degree of default dependence between the province and EVN; and (3)
the rating agency's assessment of a moderate probability of extraordinary
The principal methodology used in rating EVN AG ("EVN") was
the Unregulated Utilities and Power Companies rating methodology published
in August 2009. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found on Moody's
EVN is a multi-utility with primary focus on the province of Lower
Austria. The company is the second-largest of the nine Austrian
provincial electric utilities, with energy activities (i.e.
electricity generation, distribution and supply; gas distribution
and supply) accounting for more than 90% of the EUR2.7 billion
revenues generated for the financial year ended 30 September 2009.
Information sources used to prepare the credit rating is/are the following:
parties involved in the ratings, parties not involved in the rating,
public information, confidential and proprietary Moody's Investors
Service's information, confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
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MOODY'S adopts all necessary measures so that the information it uses
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MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
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Please see ratings tab on the issuer/entity page on Moodys.com
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The date on which some Credit Ratings were first released goes back to
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Please see the ratings disclosure page on our website www.moodys.com
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Asst Vice President - Analyst
Infrastructure Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
MD - Infrastructure Finance
Infrastructure Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
Moody's downgrades EVN's rating to A3; outlook stable
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