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Rating Action:

Moody's places E.ON's Baa1 ratings on review for downgrade

13 Feb 2016

Note: On February 18, 2016, the press release was corrected as follows: In the debt list, under issuer E. ON SE, the affirmation was changed to “Commercial paper, affirmed P-2”. Revised release follows

London, 13 February 2016 -- Moody's Investors Service, (Moody's) has today placed on review for downgrade the Baa1 senior unsecured ratings of E.ON SE (E.ON) and its guaranteed subsidiaries, E.ON International Finance B.V. and E.ON Beteiligungen GmbH. Concurrently, the rating agency affirmed the group's P-2 short-term ratings.

A full list of affected ratings is provided towards the end of this press release.

RATING RATIONALE

Today's action reflects E.ON's exposure to a weakening power and commodity price environment. Forward baseload prices in Germany have declined by more than 20% in the last three months, reflecting a decline in commodity prices, notably coal and CO2 which dropped by 20% and 33% during the same period respectively. Current one-year forward baseload prices of around EUR23/ MWh are below Moody's estimates published in June 2015 of a EUR30-35/ MWh range over 2015. At the same time, prices in the Nordic region have deteriorated, by around 22% in the last three months. High hydrology also affects current one-year forward baseload prices of around EUR18/ MWh, below Moody's estimates published in June 2015 of a EUR25-30/ MWh range.

E.ON has a diversified generation portfolio, with around 25% of attributable capacity and 38% of output exposed to outright power (nuclear, hydro and lignite), lower than some of its peers. Nonetheless, while we note that outright production is largely hedged over 2016 and 2017, Moody's expects greater earnings deterioration from generation as hedges run off in the future. Additionally, E.ON's Russian operations are exposed to lower ruble/euro rates, which will have an effect on earnings from that region.

The rating review reflects the company's potentially reduced financial flexibility as it takes steps to determine the capital structure of both future E.ON and Uniper, in the context of a volatile operating environment, before the proposed spin-off of Uniper later this year.

Moody's notes the considerable efforts taken by the company to reduce debt and improve liquidity over recent years. resulting in credit metrics of FFO/net debt of 23.7% and RCF/net debt of 20.1% in 2014, and debt has reduced further in 2015. Nonetheless, E.ON's ability to maintain a financial profile consistent with a Baa1 rating may be hampered by the need to support a stronger financial profile at Uniper to mitigate the pressure on its business profile of the recent power, commodity and foreign exchange developments. E.ON has a target of an investment grade rating at this entity.

The review will also factor the outcome, if known, of the deliberations by the nuclear commission appointed by the government to consider a partial or full externalization of funding to cover the industry's nuclear obligations, which are to be backed by contributions from the generators. Moody's expects that while a pragmatic solution is sought, key credit considerations will be any potential residual exposure of the generators to the somewhat unquantifiable risks relating to final storage, in addition to the pace and scale of any such funding.

The rating action takes place in the context of the proposed restructuring of the E.ON group that envisages the allocation of the majority of the shares to existing shareholders in the newly established company, Uniper, which will hold the group's power, gas up- and midstream and commodity businesses. The networks, renewables, and customer solutions businesses will remain with E.ON, which will also retain the associated assets and liabilities in relation to its nuclear generation activities. The company plans to present the capital structure and strategic plans of both companies to the capital markets in April or May prior to the AGM in early June. Moody's expects to conclude the review in the light of this more complete information. Nonetheless, it may be a number of months following the AGM before the capital structures of both companies are finally implemented. Moody's notes that the transaction might lead to actions from such stakeholders, which could also be relevant to the future risk profile of both E.ON and Uniper.

WHAT COULD CHANGE THE RATING UP/DOWN

The ratings could be confirmed if the company can demonstrate that it is well on track to establish a financial structure in line with a Baa1 rating. The rating agency is likely to establish guidance for the rating category when further details of any proposed nuclear solution are known.

The ratings could be downgraded if it appears unlikely that an appropriate financial structure for a Baa1 rating can be maintained. This could be as a result of the challenging business environment or if requirements in relation to the prefunding or externalization of nuclear obligations prove unduly onerous.

Moody's expects that any downgrade is likely to be limited to one notch and expects to conclude the review within 90 days.

The principal methodology used in these ratings was Unregulated Utilities and Unregulated Power Companies published in October 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

LIST OF AFFECTED RATINGS

Issuer: E.ON International Finance B.V.

....BACKED Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa1

....BACKED Senior Unsecured MTN, Placed on Review for Downgrade, currently (P)Baa1

..Affirmations:

....BACKED Commercial Paper, Affirmed P-2

...Outlook, Changed To Rating Under Review From Negative

Issuer: E.ON SE

....Senior Unsecured MTN, Placed on Review for Downgrade, currently (P)Baa1

..Affirmations:

.... Commercial paper, affirmed P-2

...Outlook, Changed To Rating Under Review From Negative

Issuer: E.ON Beteiligungen GmbH

....BACKED Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa1

...Outlook, Changed To Rating Under Review From Negative

Headquartered in Essen, Germany, E.ON SE is one of the world's largest investor-owned power and gas companies, reporting group EBITDA of EUR8.3 billion in 2014.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Helen Francis
VP - Senior Credit Officer
Infrastructure 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

Neil Griffiths-Lambeth
Associate Managing Director
Infrastructure 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 places E.ON's Baa1 ratings on review for downgrade
No Related Data.
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