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14 Oct 2010
London, 14 October 2010 -- Moody's Investors Service has today downgraded the long-term
senior unsecured ratings of Edison S.p.A (Edison) to Baa3
from Baa2. The outlook has been changed to stable from negative.
Ratings affected are:
..Issuer: Edison S.p.A.
....Issuer Rating, Downgraded to Baa3
....Senior Unsecured Medium-Term Note
Program, Downgraded to (P)Baa3 from (P)Baa2
....Senior Unsecured Regular Bond/Debentures,
Downgraded to Baa3 from Baa2
..Issuer: Edison S.p.A.
....Outlook, Changed To Stable From
The rating downgrade reflects Moody's expectation that, given
the continuing weak outlook for the power and gas industry in Italy,
the company's financial profile is unlikely to recover in the intermediate
term to the parameters for the Baa2 rating category previously indicated,
including retained cash flow (RCF)/net debt of 20% or above.
The change to a negative outlook on the Baa2 rating in July 2009 flagged
the deterioration in the macroeconomic environment in Italy as a result
of lower demand in gas and electricity, coinciding with greater
volumes of gas being imported into Italy, adding significant pressure
to margins. There has been limited recovery in 2010 and,
in Italy's rather oversupplied market, Edison's largely
gas-fired generation portfolio, has suffered from low load
factors and squeezed margins, in common with other gas-fired
producers. Moody's notes that the impact on margins has been
partially mitigated by the company's hedging and portfolio optimisation
strategy and increased sales to end users rather than the pool.
In the gas business, Edison's profitability is expected to
be significantly negatively impacted by current differentials in long
term take-or-pay contracts (linked to oil prices) vis-a-vis
lower spot gas prices, although Moody's expects that Edison,
as other industry players, will enter into negotiations with suppliers
to try to improve contract terms.
At the time of assigning the negative outlook, Moody's pointed
out that the expected decline in profitability had occurred when Edison's
financial profile had been burdened by the acquisition of the Abu Qir
concession in January 2009 for USD1.4 billion, which also
entails a possible USD1 billion or more of investments over the life of
the project to further develop the field. Edison's original
intention had been to dispose of a stake in Abu Qir in order to reduce
leverage and share risk. Such a disposal has yet to materialise
and is unlikely to take place in the near term.
We therefore expect that in 2010, as in 2009, retained cash
flow/net debt is unlikely to reach the guidelines for the Baa2 rating
category of at least RCF/net debt of 20% and that economic conditions
could well remain difficult in 2011 and possibly beyond, hampering
any speedy recovery in financial metrics.
We note that in 2010 the company could benefit from a one-off monetisation
of the CIP-6 contracts and some related disposals, which
should benefit debt reduction, but not recurring cash flows (Funds
From Operations). We also expect that the company will continue
to take measures, such as cutting uncommitted capex, in order
to ease the pressure on its financial profile. It may also consider
further risk sharing opportunities, potentially with shareholders,
although no such opportunities have been determined and hence cannot be
factored with any certainty into our assumptions of financial recovery.
Moody's assigns a stable outlook to the current rating. In
order to maintain a Baa3 rating, the company should ensure it maintains
recurring RCF/net debt at least in the mid-teens and FFO/interest
cover above 4x. Guidance for the rating category could shift upwards
as the company's exposure to more volatile gas and exploration and
production activities increases.
The stable outlook reflects Moody's view that the company is comfortably
positioned at the current rating level. However, should the
company engage in further large investments or acquisitions, or
the market environment experience further significant deterioration such
that financial metrics fall sustainably below the guidance for the current
Baa3 category, then negative pressure could develop on the rating.
The rating could move up if the company can demonstrate that it can,
on a consistent basis, generate RCF/net debt in excess of 20%.
This guidance is likely to shift upwards in line with its increasing exposure
to exploration and production activities.
The principal methodology used in rating Edison SpA is the Global 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 website.
Edison S.p.A. is Italy's second largest utility.
With some 12GW of installed capacity, it has around a 17%
market share in electricity. In the natural gas area, Edison
is Italy's second largest operator with activities in every aspect of
the business: from exploration to production, importation,
distribution and sales. In 2009, Edison had revenues of EUR9.4
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
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 assigning
a credit rating. The rating has been disclosed to the rated entity
or its designated agents and issued with no amendment resulting from that
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
MD - Infrastructure Finance
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
Moodys downgrades Edison S.p.A to Baa3; stable outlook
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