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Rating Action:

Moody's downgrades TEPCO; continues review for possible downgrade

 The document has been translated in other languages

Global Credit Research - 20 Jun 2011

Debt amounts affected are JPY 5.08 trillion, EUR 1 billion, and Swiss Franc 600 million

Tokyo, June 20, 2011 -- Moody's Japan K.K. has downgraded the ratings of Tokyo Electric Power Co., Inc. (TEPCO). TEPCO's senior secured rating is downgraded to Ba2 from Baa2, and its long-term Issuer Rating to B1 from Baa3. Moody's Japan K.K. has also assigned the company a corporate family rating of Ba3. The ratings remain on review for possible further downgrade.

RATINGS RATIONALE

The latest downgrade reflects further escalation of costs and damages from the continuing Fukushima nuclear plant disaster and increased concern that government support measures may not completely protect creditors from losses.

Since our last rating action in May, the company has disclosed that three of the nuclear reactors show containment damage and have experienced core meltdowns, or problems much worse than previously known. Moreover, the areas contaminated by radiation have been much more than previous estimates. And total costs will continue to rise until the reactors are brought into a state of safe cold shut-down, and which is not expected until 2012.

Moody's believes that the magnitude of likely damages, including compensation liability, has risen to a level that is beyond TEPCO's ability to finance without government support. While the Japanese Cabinet has approved and submitted a support plan, the Diet may not be able to act in a timely manner under the current political situation. If the Diet passes the support program, it appears that some important details will be determined at a later date by a newly formed organization.

Moody's notes some missing key details, such as how much other nuclear business operators will be required to contribute, how the compensation liabilities will be recognized on TEPCO's financial statements, and how long TEPCO will need to make special contributions to the entity, and whether debt holders may need to make concessions.

But, we believe that it is very likely that a support program in some form will be legislated eventually due to TEPCO's role as Japan's largest provider of electricity.

Consequently, a failure to approve the support program would result in a multi-notch downgrade to reflect likely default through some form of debt restructuring, or court-supervised bankruptcy proceedings.

Moody's assessment is that TEPCO would be insolvent in the absence of substantial and timely government financial support for its payment of damages, and which may ultimately reach several trillion yen.

Even under a best case scenario in which a support program is enacted on a timely basis, we expect TEPCO to have very weak financial metrics for a number of years with any free cash flow being utilized for repayment of funds that are advanced under the government support program.

Since the quake, TEPCO has booked an extraordinary loss of JPY1020.4 billion (US$ 12.4 billion) -- JPY426.2 billion (US$5.2 billion) associated with cooling the Fukushima Daiichi plant and JPY207 billion (US$2.5 billion) for shutting down four of the reactors at the site.

The extraordinary loss resulted in a reduction in equity to JPY 1,558 billion at FYE 3/2011 from JPY 2,466 billion one year before.

In addition, TEPCO will struggle to meet higher power demand during summer months and rising costs for replacement power.

TEPCO may also need to bear higher costs for stabilizing the Fukushima Daiichi plant, as well as for its decommissioning. Moody's is also concerned that the company will continue to experience sizeable operating losses until it can increase its electric rates to reflect its increased cost base.

Prospects for passing higher costs onto its customers in timely manner that meets the company's financial needs are in doubt under the current regulatory regime and in view of the unfavorable economic environment.

These factors would together put its equity base under significant pressure. In addition, no losses have yet been booked for compensation claims which size is still uncertain.

The widening of the ratings notching between the senior secured and long-term issuer rating reflects the higher recovery prospects for senior secured bondholders when compared to other creditors in a default scenario. It also considers the unsecured nature of obligations for damages related to the nuclear accident.

The continued review for possible further downgrade is due to the uncertainty surrounding the passage of the support plan through the Diet, and the difficulty in estimating the ultimate total for TEPCO's total compensation liability.

Ratings downgraded:

Senior secured to Ba2 from Baa2; and long-term Issuer Rating to B1 from Baa3.

Rating assigned:

Corporate Family Rating of Ba3

The principal methodology used in rating TEPCO was Regulated Electric and Gas Utilities, published on September 30, 2010 and available on www.moodys.jp.

Tokyo Electric Power Co., Inc. (TEPCO) is the largest integrated electricity supplier in Japan and is headquartered in Tokyo.

To further discuss these actions Moody's will host two teleconferences:

the first teleconference in Japanese will be beginning at 17:00 Tokyo Time on Tuesday, June 21th, the second teleconference in English will be beginning at 23:00 Tokyo Time on Wednesday, June 22th.

To register and for additional information please visit http://www.moodys.com/eventslist.aspx.

REGULATORY DISCLOSURES

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 information.

Measures taken to ensure the quality of this information include use of public information, reviews by a third party and verification by the lead analyst.

Moody's considers the quality of information available on the issuer or obligations satisfactory for the purposes of maintaining a credit rating.

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.

Credit ratings are Moody's current opinions of the relative future credit risk of entities, credit commitments, or debt or debt-like securities. Moody's defines credit risk as the risk that an entity may not meet its contractual, financial obligations as they come due and any estimated financial loss in the event of default. Credit ratings do not address any other risk, including but not limited to: liquidity risk, market value risk, or price volatility. Credit ratings do not constitute investment or financial advice, and credit ratings are not recommendations to purchase, sell, or hold particular securities. No warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such rating or other opinion or information is given or made by Moody's in any form or manner whatsoever. The credit risk of an issuer or its obligations is assessed based on information received from the issuer or from public sources. Moody's may change the rating when it deems necessary. Moody's may also withdraw the rating due to insufficient information, or for other reasons.

Moody's Japan K.K. is a credit rating agency registered with the Japan Financial Services Agency and its registration number is FSA Commissioner (Ratings) No. 2. The Financial Services Agency has not imposed any supervisory measures on Moody's Japan K.K. in the past year.

Please see ratings tab on the issuer/entity page on the Moody's website 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 Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 the Moody's website for further information.

Please see the Credit Policy page on the Moody's website for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Tokyo
Kenji Okamoto
Vice President - Senior Analyst
Corporate Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Tokyo
Shinsuke Tanimoto
Senior Vice President - Team Leader
Corporate Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Moody's downgrades TEPCO; continues review for possible downgrade
No Related Data.

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