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25 Sep 2008
Moody's reviews for downgrade Aa1 ratings of EDF; places Ba2 ratings of British Energy on review for upgrade
Approximately EUR 14 billion of debt securities affected
London, 25 September 2008 -- Moody's Investors Service placed on review for possible downgrade
the Aa1 long-term senior unsecured debt and issuer ratings of Electricite
de France SA (EDF, the Group), as well as the ratings of certain
of its subsidiaries, including the A3 senior unsecured debt and
issuer ratings of EDF Energy plc and EDF Trading Limited, which
incorporate a degree of support from their positioning within the EDF
Group. The short-term debt and issuer ratings of EDF (at
Prime-1) and EDF Energy plc (at Prime-2) were affirmed.
At the same time, Moody's placed on review for possible upgrade
the Ba2 corporate family and probability of default ratings of British
Energy Group plc (British Energy), and the Ba3 guaranteed debt rating
of British Energy Bond Finance plc (formerly British Energy Holdings plc).
The rating actions follow the announcement that the boards of EDF and
British Energy have agreed on the terms of the recommended offers to be
made by EDF, through its wholly-owned subsidiary Lake Acquisitions
Limited, for the entire issued and to be issued share capital of
British Energy. The offers, which include a cash offer and
a partial CVR alternative, value British Energy at approximately
GBP12.5 billion. The transaction is expected to become effective
in the last quarter of 2008, or early 2009, subject to certain
conditions including required thresholds for shareholder acceptances,
and approval by the European Commission and UK Competition Commission.
EDF and Centrica (rated A3/Prime-2 by Moody's) are in discussions
in relation to an option for Centrica to acquire 25% of Lake Acquisitions.
Moody's notes that although there is no certainty that such an agreement
will be reached, EDF's willingness to proceed with the acquisition
of British Energy is in no way dependent on reaching such an agreement.
The following ratings were placed on review for possible downgrade:
EDF SA -- the Aa1 senior unsecured debt and issuer ratings
EDF Energy plc -- the A3 senior unsecured debt ratings
EDF Energy Networks (LPN) plc -- the A2/Prime-1 senior unsecured
debt and issuer ratings
EDF Energy Networks (EPN) plc -- the A2/Prime-1 senior unsecured
debt and issuer ratings
EDF Energy Networks (SPN) plc -- the A3 senior unsecured debt and
EDF Trading Limited - the A3 senior unsecured issuer rating
EDF Energy (South East) plc -- the A3 senior unsecured issuer rating
EDF Energy Customers plc- the A3 senior unsecured issuer rating
SEEBOARD Energy Ltd -- the A3 senior unsecured issuer rating
The following ratings were affirmed:
EDF SA -- the Prime-1 senior unsecured short-term debt
and issuer ratings
EDF Energy plc -- the Prime-2 senior unsecured short-term
EDF Energy Networks (SPN) plc -- the Prime-2 senior unsecured
short-term debt rating
EDF Energy (South East) plc -- the Prime-2 senior unsecured
short-term issuer rating
The following ratings were placed on review for possible upgrade:
British Energy Group plc -- the Ba2 corporate family and probability
of default ratings
British Energy Bond Finance plc (formerly British Energy Holdings plc)
-- the Ba3 guaranteed debt rating
The review for possible downgrade of EDF's Aa1 ratings reflects
the negative pressure exerted by the planned acquisition on EDF's
Baseline Credit Assessment (BCA) of 4 (equivalent to a Aa3 rating).
While recognising the potential benefits and strategic rationale of the
acquisition, these are offset, in Moody's view,
by additional business and operational risks, as well as the negative
impact on EDF's financial profile of the debt required to fund it.
Moody's says the planned transaction is in line with EDF's
ambition to be at the forefront of the global nuclear revival, and
leaves it well placed to participate in New Nuclear Build in the UK.
It will also strengthen the Group's position within the UK energy
sector by transforming EDF Energy plc's hitherto short generation
position, and securing its access to power during a period of possible
pressure on generation capacity.
The review for downgrade is prompted nevertheless by the scale of the
transaction and its possible impact on EDF's business risk profile,
currently considered low. The review also reflects Moody's
view that additional debt incurred, combined with limited net incremental
cash flow generation after financing costs, is likely to be reflected
in a weakening of the Group's financial risk profile. In
the event that the acquisition were to complete as planned, EDF's
credit metrics are likely to decline to levels inconsistent with a BCA
of 4, even if Centrica were to acquire a 25% stake in Lake
Acquisitions. Moody's estimates, for example,
that on the basis of current operating performance expectations,
there is a risk that the additional borrowing would be reflected in EDF's
RCF/net debt declining to less than 20%, the current guidance
level for its BCA of 4 given a low business risk profile.
Moody's says that the review process will evaluate the impact of
the proposed acquisition on the Group's business risk profile,
including in the shorter-term its plans for managing its increased
position in UK power generation and the operational risks associated with
running British Energy's relatively old nuclear reactors,
most of which are AGRs. It will also factor in the longer-term
implications of the substantial investment which will be required in New
Nuclear Build in the UK.
As part of its review of EDF's financial profile, Moody's
will incorporate the possible stake sale to Centrica, any land or
plant sales potentially required as remedies by the competition authorities,
as well as expected future capital investment requirements. It
will also consider the impact of the acquisition, if any,
on the structure and financing of the Group's UK activities,
including any potential implications for the EDF Energy plc sub-group.
Finally, the review will take account of the integration and execution
risks associated with an acquisition of this size.
Moody's adds that the review for upgrade of British Energy's
Ba2 ratings is prompted by the potential improvement in British Energy's
business risk profile through its position within EDF which should broaden
its access to markets, finance and engineering expertise.
The rating review will take account of EDF's plans for the future
capital structure and financing of British Energy, as well as for
investment both in the existing fleet and New Nuclear Build.
In two related releases, Moody's has commented on Centrica's
discussions with EDF, and affirmed its Baa3 ratings of Sutton Bridge
Electricite de France SA is an integrated provider of electricity generation,
transmission, distribution, and supply services, leader,
by far, in its domestic French market. The company also has
a major presence in the international markets through ownership interests
in power utility operations in Europe (primarily Italy, UK and Germany)
and globally. In the six months ended 30 June 2008 it recorded
revenues of EUR32 billion and EBITDA of EUR9 billion.
EDF Energy plc is an integrated electricity generation, distribution
and supply company, and is the largest UK regulated network owner.
The company has approximately 5.5 million customer accounts and
nearly 5,000 MW of generation. In the year to YE2007,
the company reported revenues of GBP6 billion and EBITDA of GBP0.9
British Energy Group plc is the largest power generator in the UK,
delivering around 20% of UK electricity demand from around 10.6
GW of installed capacity (83% of which is nuclear). In the
three months ended 30 June 08, British Energy reported total output
of 11.4 TWh, revenues of GBP629 million and EBITDA of GBP129
Moody's Investors Service Ltd.
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