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Rating Action:

Moody's downgrades Urenco to Baa1/P-2.

26 Oct 2012

London, 26 October 2012 -- Moody's Investor's Service has today downgraded senior unsecured issuer ratings of Urenco Ltd to Baa1/P-2. The rating reflects a one notch downgrade of the Baseline Credit Assessment (BCA) from baa1 to baa2 and a one-notch reduction in the rating uplift related to the assessment of potential government support. The outlook on the ratings is stable.

RATINGS RATIONALE

The one-notch downgrade of the BCA reflects our expectation of slower growth in demand for enrichment services in the medium term as a result of the downward revision of commitments to nuclear power in several countries, in particular in Germany, as well as the recently announced delay with reactor re-starts in Japan, that will limit further improvement in earnings and operating cash flows.

Although Urenco retains the flexibility in managing its investment plans to match weakening market conditions, we expect that capital expenditure investments will remain relatively high in the next 18-24 months while the company concludes the construction of the "tails" management facility. As capex needs reduce, we expect that the company will step up dividend payments, as the earlier agreement reached with the shareholders to reduce dividend payments was temporary and was designed to support the expansion in the US. The reinstatement of the dividend payouts would delay Urenco's return to positive FCF and debt reduction, that were expected to support the previous baa1 BCA. As of the end of 2Q 2012, Urenco's Total Debt / EBITDA leverage remained just above 3x (and has improved from 3.7x at the end of 2011 through addition of capacity and earnings). The downgrade of the BCA reflects limited opportunities for further deleveraging in the next couple of years, as well as the delayed return to positive FCF generation.

The reduction in the credit uplift allowed to the rating through the assessment of the shareholder support from the maximum two notches to a one-notch uplift, reflects a higher level of uncertainty surrounding the level of government support available to Urenco over time, as several shareholders are reportedly reviewing their ownership in the company. Pending the resolution of the current situation, we expect a greater pressure on the financial profile of the company to develop, as shareholders may become more demanding of Urenco in terms of dividends, for example. The baa2 BCA also reflects a higher degree of self-reliance in managing long-term nuclear obligations of the business, than previously assumed.

Rating Sensitivities

The baa2 BCA may be upgraded if the company achieves a sustainable improvement of its credit profile, with RCF/Debt at high 20s, strong FCF generation and Total Debt / EBITDA sustainably below 3x.

Sustained negative FCF generation resulting in further debt accumulation with Total Debt / EBITDA moving towards 3.5x, as well as a decline in debt affordability with (FFO + Interest) / Interest at or below 6x will put negative pressure on the BCA.

Liquidity

Urenco's liquidity position remains adequate, despite very low cash balances which stood at EUR 12 million at the end of June 2012. Urenco's liquidity requirements are supported by the EUR 650 million revolving credit facility, as well as a EUR 100 million bilateral facility. Both facilities mature in 2016 and have no financial covenants.

Urenco has limited maturities before 2015 when it will face EUR 500m bond maturity. The company's notes and bank facilities benefit from the change of control provisions related to a decline in the ownership by current shareholders.

The principal methodology used in rating Urenco Ltd. and Urenco Finance N.V. was the Global Chemical Industry Methodology published in December 2009 and Unregulated Utilities and Power Companies Industry Methodology published in August 2009. Other methodologies used include the Government-Related Issuers: Methodology Update published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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Elena Nadtotchi
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Olivier Beroud
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades Urenco to Baa1/P-2.
No Related Data.
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