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Announcement:

Moody's places Edison SpA's Baa3 ratings on review for downgrade

07 Dec 2011

London, 07 December 2011 -- Moody's Investors Service has today placed the Baa3 senior unsecured ratings of Edison SpA ("Edison") on review for downgrade. The review was prompted by the continued failure of Edison's ultimate shareholders to reach consensus on the terms of an agreement regarding an expected redefinition of the strategic and governance model of Edison. These shareholders include Electricite de France ("EDF", Aa3/Prime 1/stable outlook), which directly and indirectly holds 50% of Edison, and A2A (Baa1 negative), which indirectly holds 15.6%. The shareholders' agreement has been extended by a further month, to the end of December 2011.

For a full list of rating actions, please see below.

RATINGS RATIONALE

"Our review of Edison's ratings reflect the fact that, given the delays in reaching an agreement, there is a potentially heightened risk that the shareholders' agreement could be terminated," says Helen Francis, a Moody's Vice President -- Senior Credit Officer and lead analyst for Edison. "This could lead to greater uncertainty for Edison as a result of the dissolution of Transalpina d'Energia (TdE), an intermediate holding company, the auction of its 61.3% share in Edison and the possible departure of EDF from the shareholding of the company," explains Ms Francis. "As a result, downward pressure could be exerted on the ratings, by one notch or possibly more." Conversely, should the shareholders manage to reach agreement along the lines indicated in shareholder statements at the end of the October, effectively giving EDF control of the company, this could have a stabilizing impact on Edison's ratings.

The Baa3 ratings reflect Moody's base-case assumption that Edison's shareholders are likely to reach an agreement whereby EDF will assume greater control of Edison and hence integrate it further into its business operations. As indicated in its press release of June 2011, Moody's believes that Edison's credit profile exhibits non-investment grade characteristics on a standalone basis. This is because the company's credit profile has been affected by the continuing weak outlook for the power and gas industry in Italy in the context of a strained macroeconomic environment and an oversupply of gas in Italy. These factors are reflected in the current negative differentials between some of the company's long term take-or-pay contracts (linked to oil prices) vis-a-vis spot gas prices.

Edison's profitability is likely to continue to be negatively affected in 2011 and into 2012. The company expects to achieve EBITDA of EUR900 million for the full year 2011 (compared with EUR1.2 billion in 2010 excluding one-off items). Moody's would expect Edison's net debt for financial year ending (FYE) 2011 to be broadly in line with, or possibly slightly lower than, that as at third quarter 2011 -- EUR4.1 billion. However, this will be partially dependent on the company's control of its working capital, which was significantly negative as of the third quarter. In the rating agency's view, Edison's financial performance in 2012 is likely to be affected by the factors that have constrained its performance in 2011. Edison's results could be significantly improved if it were able to renegotiate successfully its gas take-or-pay contracts outstanding with Qatar, Libya and Algeria, which represent a substantial 12.4 billion cubic metres (bcm). However, no result is expected until second half 2012 at the earliest.

Edison has sufficient liquidity available under its outstanding revolving credit facility to refinance, via a shareholder loan, its 50% share (EUR550 million) of the Edipower debt facility maturing in December 2011. Moody's understands that the other shareholders are examining the possibility of putting in place similar shareholder loans. Edison has limited debt maturities in 2012 until December, when a EUR500 million loan falls due. However, Edison's liquidity will be tight during the year unless it negotiates further facilities, the company benefits from a positive outcome to its renegotiations of its gas contracts and there is a significant improvement in its working capital.

Moody's notes that Edison already consolidates its 50% share of Edipower on a pro-rata basis. The proposed agreement between the shareholders, released at the end of October 2011, includes a split of Edipower's assets between the shareholders, whereby Edison would gain Edipower's, and certain other, thermal assets, whilst hydro and other renewable assets would be acquired by the other shareholders, including A2A. The debt allocation between the shareholders is still under discussion but, in Moody's view, is likely to reflect the valuation of the assets, once decided.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Moody's could downgrade the ratings by one notch or more if it became apparent that EDF would not take control of Edison in the short term and no other arrangements were put in place to (i) bolster the company's liquidity and (ii) find a suitable solution to address the business challenges that the company currently faces and improve the company's financial profile.

Given that it has placed Edison's ratings on review for downgrade, Moody's does not expect upward pressure in the short term. However, the ratings could remain at Baa3, and possibly improve over time, if EDF were to gain control of Edison. Any development of Edison's ratings would, firstly, reflect the strength of its standalone business and its financial and liquidity profile post the restructuring of Edipower. Given the near-term challenges facing Edison, it is likely to be consistent with a non-investment grade profile. Secondly, any uplift to Edison's ratings would likely be a result of (i) control by a more highly rated shareholder; and (ii) the likelihood that such a shareholder could effect certain rationalisations and synergies not currently available to the company in its current structure. The amount of rating uplift for EDF's ownership of Edison, by one or possibly two notches, is likely to be influenced by the degree of ownership by EDF and the extent to which it could demonstrate a closely integrated and supportive relationship.

Moody's notes that, even if a shareholders' agreement is reached, it remains subject to regulatory approvals. EDF's ownership of Edison could increase from 50% towards 70% in the near term, if CONSOB -- the National Commission for Listed Companies and the Stock Exchange -- requires (and EDF accedes to) a mandatory offer to Edison's minority shareholders. Additionally, over the longer term, and if the current shareholder's agreement was resolved as currently proposed, EDF's ownership of Edison could increase towards 100% if DELMI were to exercise options to sell its Edison shares to EDF in a three-to-five-year timeframe.

Ratings affected by today's rating action are:

Baa3 issuer rating

(P)Baa3-rated EMTN programme and all Baa3-rated notes issued thereunder

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Unregulated Utilities and Power Companies published in August 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Edison S.p.A. is Italy's second-largest utility. With some 12 GW of installed capacity, its share of the country's electricity market is around 17%. 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 2010, Edison had revenues of EUR11.04 billion.

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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing this review.

Moody's adopts all necessary measures so that the information it uses in assigning a 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.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's 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 our website www.moodys.com for further information.

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.

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

Monica Merli
MD - Infrastructure Finance
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 Edison SpA's Baa3 ratings on review for downgrade
No Related Data.
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