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Announcement:

Moody's places Veolia's A3 ratings on review for downgrade

13 Dec 2011

Approximately EUR14 billion rated debt securities affected

London, 13 December 2011 -- Moody's Investors Service today placed on review for possible downgrade the A3 senior unsecured ratings of Veolia Environnement SA ('Veolia' or 'the Group'). The Prime-2 senior unsecured rating was affirmed.

RATINGS RATIONALE

The review for downgrade follows Veolia's recent presentation of its strategic plan and updated outlook. The plan is designed to address the pressures being exerted on revenue growth and profitability in the mature economies in which it operates and provides for (i) the restructuring of the Group's divisions and portfolio of activities through a substantial EUR5 billion divestment programme over 2012-13; (ii) a reduction in net financial debt from an estimated EUR15 billion at end-2011, to under EUR12 billion by end-2013; and (iii) a reduction in its cost base by streamlining and introducing greater standardization of management structures across the Group.

Moody's notes that as Veolia puts its plan into effect, the Group should benefit progressively from a more focused asset portfolio, a reduced cost base and lower leverage. However, the review for downgrade is prompted by the wide-ranging scope of the transformation, which includes the planned disposal of its transportation division and regulated UK water assets. When combined with its targeted gradual increase in exposure to faster growing markets and the industrial sector, this will lead to a change in the Group's business risk profile in Moody's view. Moreover, although Veolia has a reasonable track record in recent years of realising targeted disposal proceeds, completing the planned divestments and cost cutting Convergence programme on a timely basis will present a considerable challenge in the current market.

In the meantime, negative pressure is likely to be exerted on Veolia's cash flows by the costs of restructuring, the weak market outlook and the commitment to a dividend pay-out of EUR0.70 per share in 2012 and 2013, with the risk that its financial flexibility will fall short of Moody's current ratio guidance for the A3 rating. This assumes that metrics will strengthen steadily and sustainably within the 15% - 20% range for retained cash flow (RCF)/net debt and towards 20% for funds from operations (FFO)/net debt.

Moody's says the rating review will consider the impact of the measures planned on the business risk profile of the Group. The review will evaluate the extent to which any increase in business risk should be compensated by strengthened financial flexibility, and any appropriate re-calibration of metric guidance to reflect that. It will also include an evaluation of the quantum and timing of asset disposals and cost reductions planned and the expected path to de-leveraging outlined by the Group.

The following ratings were placed on review for possible downgrade:

Veolia Environnement SA: the A3 and (P)A3 senior unsecured debt and issuer ratings

The following rating was affirmed:

Veolia Environnement SA: the Prime-2 commercial paper rating

Velolia's ratings were assigned by evaluating factors that Moody's considers relevant to the credit profile of the issuer, such as the company's (i) business risk and competitive position compared with others within the industry; (ii) capital structure and financial risk; (iii) projected performance over the near to intermediate term; and (iv) management's track record and tolerance for risk. Moody's compared these attributes against other issuers both within and outside Veolia's core industry and believes Veolia's ratings are comparable to those of other issuers with similar credit risk.

Headquartered in Paris, France, Veolia Environnement S.A. is the parent company of one of the world largest integrated environmental services and outsourcing groups. In the first nine months of 2011, the company reported revenues of EUR24 billion and adjusted operating income of EUR1.3 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.

Niel Bisset
Senior Vice President
Infrastructure Finance
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
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 Veolia's A3 ratings on review for downgrade
No Related Data.
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