Paris, January 17, 2022 -- Moody's Investors Service (Moody's) has today placed on review
for downgrade the A3 senior unsecured ratings of Electricite de France
(EDF) and the Baa3 ratings of its perpetual junior subordinated notes.
Moody's has also placed on review for downgrade the Baa2 long-term
issuer rating of EDF's subsidiaries EDF Trading Limited (EDFT),
EDF Energy Holdings Ltd (EDF Energy) and Edison S.p.A.
(Edison), which incorporate support from their ultimate parent.
Concurrently, Moody's has affirmed the group's Prime-2 short-term
ratings.
A full list of affected ratings is provided towards the end of this press
release.
RATINGS RATIONALE
Today's rating action was prompted by the January 13 announcement by the
Government of France (Aa2 stable) of measures to limit the increase in
electricity tariffs for 2022 and EDF's reduction of its nuclear
output estimate for the year, announced on the same date [1].
The rating review will consider the impact of the planned measures on
EDF's financial profile in the context of the lower output,
mitigating measures that the company may pursue and any additional support
that government may provide.
In its announcement, the French government said that it will increase
the volume of electricity that EDF must sell under the ARENH mechanism
by 20 TWh to 120 TWh over April to December 2022 to limit the increase
in regulated tariffs for 2022 to 4%. Whilst it will now
have to sell more electricity to alternative suppliers, EDF estimates
that its nuclear output for 2022 will be lower than previously anticipated,
in the range 300 -- 330 TWh to compare with 330 -- 360 TWh initially
expected. The reduction follows an extension of the outage period
for five of EDF's French nuclear reactors related to weld and corrosion
defects.
French consumers will benefit from the higher ARENH volumes. Alternative
suppliers will be able to purchase the additional 20TWh from EDF at a
price of EUR 46.2/MWh. This is significantly below the average
forward power price of c. EUR229/MWh for 2022 (as of 31 Dec.
2021).
Conversely, the planned ARENH changes and lower output will result
in significant costs for EDF. In accordance with its hedging policy,
the group had sold forward substantially all its anticipated 2022 output.
It will now have to buy up to c. 50 TWh of electricity at prevailing
market prices to meet its obligations and sell 20 TWh at EUR46.2/MWh
and the rest of the power at a price Moody's estimates close to
EUR55/MWh. The planned increase in the ARENH ceiling will also
weigh on future regulated tariffs by reducing the contribution of merchant
exposed volumes in the tariff calculation.
EDF has said that the consequences of the ARENH changes and the outages
cannot be determined at this stage. For illustrative purposes,
the group has estimated the impact on 2022 EBITDA at circa EUR 7.7
billion based on market prices on 12 January. The impact of the
reduced output is, according to EDF, currently being analysed.
Moody's estimates that EDF's funds from operations (FFO)/net
debt could fall to c.2% in 2022 as compared with guidance
for the current Baseline Credit Assessment (BCA) of baa2 which is in the
mid-to-high teens in percentage terms.
The review will focus on the likely cost and the impact of any mitigation
measures on EDF's business risk profile and credit metrics as well
as the commitment of government of France to further support the group,
in the context of its c. 84% ownership. In its assessment,
Moody's will consider (1) the nature and importance of mitigants EDF has
said it will announce on 18 February 2022; (2) French government
policy with regards to the ARENH mechanism; and (3) the result of
the ongoing nuclear fleet audit and the implications of the fleet ageing
for its sustainable availability.
Social risk is a key driver of the rating action. The French government's
decision to step in to address affordability concerns and protect end-customers
as planned is an adverse political intervention and, without offsetting
measures, highly detrimental to EDF's economic interests.
The review of EDFT's, EDF Energy's and Edison's ratings follows
that of their ultimate parent EDF given their significant integration
into and close relationship with EDF.
Excluding the ratings review, EDF's A3/P-2 ratings reflect
the BCA of baa2 and Moody's expectation that the Government of France,
EDF's majority shareholder, would continue to provide support if
needed.
The baa2 BCA is underpinned by (1) the scale and breadth of EDF's businesses
across the energy value in France, which account for more than two-thirds
of its EBITDA; (2) the rising contribution to earnings from its domestic
regulated activities and renewables business, which together account
for around 37% of the group's EBITDA in 2020, as a result
of new connections and additional capacities driven by the energy transition
plan outlined in the multi-year energy programme; and (3)
its geographical diversification given its sizeable positions in Italy
and in the United Kingdom (UK).
These positives are balanced by (1) EDF's fixed-cost merchant power
generation in France and the UK, which exposes it to power price
volatility, albeit supportive since H2 20; (2) increasing competition
in the French supply market, which result in a weakening of EDF
leading position; (3) a significant capital spending programme which
results in negative FCF; and (4) the construction risk associated
with the Flamanville new nuclear reactor in France and the Hinkley Point
C (HPC) new nuclear project in the UK.
The A3 issuer and senior unsecured ratings incorporate an uplift for potential
government support to EDF's standalone credit quality. The uplift
to the BCA, of two notches, results from the credit quality
of EDF's shareholder, the Government of France, and Moody's
assessment of there being "high" probability of government support in
the event of financial distress, as well as "high" default dependence.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be confirmed if (1) the costs associated with the increase
in the ARENH ceiling, reduced output, and the potential increase
in political risk appear likely to be adequately mitigated by actions,
including support provided by the French government, to restore
the group's financial flexibility at a level commensurate with the
current ratings, and (2) EDF appears likely to restore its nuclear
output on a sustainable and predictable basis.
The ratings could be downgraded if the combination of the group's
action plan and government support are insufficient to offset the incremental
risks associated with the rise in ARENH cap and if nuclear output from
EDF's existing nuclear fleet is in structural decline.
Moody's will endeavour to conclude the review within 60 days.
LIST OF AFFECTED RATINGS
Issuer: Electricite de France
Affirmations:
....Commercial Paper, Affirmed P-2
....Backed Commercial Paper, Affirmed
P-2
On Review for Downgrade:
....LT Issuer Rating, Placed on Review
for Downgrade, currently A3
....Junior Subordinated Regular Bond/Debenture,
Placed on Review for Downgrade, currently Baa3
....Senior Unsecured Medium-Term Note
Program, Placed on Review for Downgrade, currently (P)A3
....Junior Subordinated Medium-Term
Note Program, Placed on Review for Downgrade, currently (P)Baa3
....Backed Senior Unsecured Medium-Term
Note Program, Placed on Review for Downgrade, currently (P)A3
....Senior Unsecured Regular Bond/Debenture,
Placed on Review for Downgrade, currently A3
....Senior Unsecured Shelf, Placed on
Review for Downgrade, currently (P)A3
....Backed Senior Unsecured Shelf, Placed
on Review for Downgrade, currently (P)A3
....Baseline Credit Assessment, Placed
on Review for Downgrade, currently baa2
Outlook Actions:
....Outlook, Changed To Rating Under
Review From Stable
Issuer: Edison S.p.A.
On Review for Possible Downgrade:
....LT Issuer Rating, Placed on Review
for Downgrade, currently Baa2
Outlook Actions:
....Outlook, Changed To Rating Under
Review From Stable
Issuer: EDF Energy Holdings Ltd
On Review for Possible Downgrade:
....LT Issuer Rating, Placed on Review
for Downgrade, currently Baa2
Outlook Actions:
....Outlook, Changed To Rating Under
Review From Stable
Issuer: EDF Trading Limited
On Review for Possible Downgrade:
....LT Issuer Rating, Placed on Review
for Downgrade, currently Baa2
Outlook Actions:
....Outlook, Changed To Rating Under
Review From Stable
The principal methodologies used in rating Electricite de France were
Unregulated Utilities and Unregulated Power Companies published in May
2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1066389,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
The principal methodology used in rating EDF Energy Holdings Ltd and Edison
S.p.A. was Unregulated Utilities and Unregulated
Power Companies published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1066389.
The principal methodology used in rating EDF Trading Limited was Trading
Companies published in June 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_190422.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
REFERENCES/CITATIONS
[1] Bruno Le Maire's interview -- EDF updates its nuclear
output estimate in France for 2022 - https://www.leparisien.fr/economie/bruno-le-maire-la-hausse-des-prix-de-lelectricite-ne-depassera-pas-4-en-2022-13-01-2022-B7RGJXILNVDR3E4OHRJWTJLZ44.php
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.
Celine Cherubin
VP-Sr Credit Officer
Infrastructure Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Neil Griffiths-Lambeth
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
