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Rating Action:

Moody's downgrades TEPCO senior secured, ratings remain on review

 The document has been translated in other languages

18 Mar 2011

Amount of debt affected is JPY 5,080 billion, EUR 1 bllion, and Swiss Franc 600 million

Tokyo, March 18, 2011 -- Moody's Japan K.K. has downgraded the ratings on Tokyo Electric Power Co., Inc., including the senior secured rating, to A1 from Aa2, and the long-term issuer rating to A1 from Aa2.

The ratings remain on review for possible further downgrade.

Moody's has also placed TEPCO's Prime-1 short-term rating for commercial paper on review for possible downgrade.

The downgrade reflects the serious impact of last week's devastating earthquake and tsunami on TEPCO's operations and reliability, the potentially massive costs that will be incurred to fully recover from these events and the effects on liquidity, and the resulting negative impact on the company's financial condition and credit profile.

TEPCO's generation capacity has been severely constrained by damage to several power plants, most notably at the Fukushima Dai-ichi Nuclear Power Station in northeastern Japan, where several reactors have been permanently disabled by damage because of the need to use seawater to cool down the reactors. The plant has also been damaged by several fires and hydrogen gas explosions. Conditions at the Dai-ichi plant remain highly uncertain, with extraordinary efforts under way to cool the reactors and limit the release of radioactivity -- efforts that may continue for some time.

Several of TEPCO's other power plants remain off-line, including the nearby Fukushima Dai-ni nuclear power plant, as well as several thermal generating plants in the region, with the timing of their return to service highly uncertain.

Moody's estimates that approximately 25% of TEPCO's generating capacity may be down, contributing to the rolling blackouts and economic disruptions not just in Tokyo but throughout the main island of Honshu. Although TEPCO's previous earthquake-related outages had been manageable -- and were followed by a gradual recovery in the company's financial performance -- Moody's believes that the magnitude and unprecedented nature of the March 11 disasters will have severely negative consequences for the company that will persist for several years at the very least.

Of primary concern is the cost of rebuilding the company's damaged infrastructure, constructing replacements for not only the Dai-ichi nuclear plant, but also for other nuclear plants, some of which may remain off-line indefinitely. TEPCO will also incur substantial costs for replacement power while new generation plants are built, adding to the company's financial needs. Moody's expects that the utility's capital expenditures will rise considerably as a result of these developments, requiring additional debt, and adding to an already highly leveraged capital structure.

Although TEPCO as a regulated entity will eventually recover the costs incurred for both the rebuilding and replacing of its power generation capacity, the potential costs for clean-up, restoration, replacement power, and construction of plants creates financial risks, given the uncertainties regarding the timing and the full extent of a cost recovery.

The utility may have to raise customer rates substantially to offset the higher costs for purchased power -- even before increases to recover costs for damage, repair, and reconstruction. Regulators may phase in these rate increases in order to limit the rate shock to customers, as occurred following the shut-down of the Kashiwazaki-Kariwa Nuclear Power Station after the Chuetsu-oki earthquake in Niigata Prefecture in 2007. Although TEPCO's liquidity was solid before this crisis, it could be severely compromised if the full recovery of these costs is delayed and borrowing is not readily available, or in the event of even more adverse developments at the Dai-ichi plant.

Moody's rating on TEPCO relies to some degree on Japan's strong regulatory and banking system support for the electric utility sector, and in light of TEPCO's high profile and importance to the country's energy infrastructure, we expect this support to continue.

TEPCO's ratings remain on review for possible downgrade due to ongoing questions about the company's ability to contain any radioactive emissions at the Dai-ichi plant, as well as uncertainty about the extent of the damage to the company's infrastructure, the cost of rebuilding and obtaining replacement power, and its ability to finance and ultimately recover these costs. Moody's estimates that debt/ to capitalization could exceed 85% for an extended period of time.

Nevertheless, over the longer term, we do see TEPCO's financial profile recovering. Ratings may be stabilized when we have a better idea of the costs to recover from these developments and the amount of time that will be needed to recover these costs, and see evidence of continued robust support from the Japanese government and banking system.

Ratings could be further downgraded, however, if Moody's concerns increase, that outlays for damages, repair, purchased power, and construction of new generating facilities may not be fully recovered quickly enough, or that TEPCO's liquidity will be constrained -- or if the Japanese government and banking system do not provide strong, timely support.

Moody's last rating action with respect to TEPCO was on March 14, 2011, when its long-term ratings were placed on review for possible downgrade.

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

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

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.

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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.
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JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Moody's downgrades TEPCO senior secured, ratings remain on review
No Related Data.
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