Fitch Ratings has downgraded Edison Spa's Long-term Issuer Default
Rating (IDR) and Senior Unsecured rating to 'BB-' from 'BBB-' and its
Short-Term IDR to 'B' from 'F3'. The Long-term IDR and Senior Unsecured
ratings are placed on Rating Watch Evolving (RWE).
The downgrade is driven by the negative impact of the
prolonged negotiation process undertaken by Edison's shareholders, EDF
SA ('A+'/Stable) and its Italian counterparties grouped in Delmi Spa. So
far, the negotiation process has recorded four reschedulings and
increasingly appears at risk of failing to meet the next deadline of 30
December 2011. Together with a high probability of a further
rescheduling of negotiations, Edison's liquidity position remains weak.
"Against a backdrop of increasingly difficult credit market
conditions and a challenging macroeconomic environment, the prolonged
delay in the negotiation process has limited the company's ability to
focus on key management functions, including the planning of funding and
liquidity requirements, to the extent that the company is no longer
commensurate with an investment grade credit profile," says Francesca
Fraulo, Director in Fitch's EMEA Energy, Utilities and Regulation team
in Milan.
The likelihood that political intervention might drag the
negotiations on even longer is also looming again and Fitch would
negatively view a solution not driven by market dynamics as one
influenced by political pressure might result in further lengthy
negotiations and potential legal disputes, which are likely to be
detrimental to the company's operating activity.
The EUR 1.1bn debt at Edipower, a company 50% owned by Edison,
is maturing on December 31 and Fitch understands that repayment should
take place through a shareholders loan, the signing of which was
yesterday approved by Edipower's board. Fitch notes that, despite
Edison's obligation to Edipower being limited to its 50% shareholding, a
cross default clause in Edison's EMTN programme could have led to an
acceleration of payments under Edison's outstanding bonds should
Edipower have had a non-payment. While the shareholders loan alleviates
immediate liquidity pressure, Fitch remains concerned about Edison's
liquidity profile in view of upcoming debt maturities and liquidity
requirements for its trading activity.
The RWE on Edison's 'BB-' Long-term IDR and Senior Unsecured
ratings highlights Fitch's concern that a protracted failure to reach an
agreement among shareholders might escalate liquidity concerns and be
prejudicial to Edison's bondholders and therefore result in a further
downgrade of the company. On the other hand, if an agreement is reached
that would result in the majority of Edison being transferred to EDF,
there is scope for positive rating momentum. The timing and significance
of the latter would depend on clarity on legal, strategic and
operational links between Edison and EDF SA.