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Nuclear finance squabble as France’s debt-laden EDF in dispute with USA’s Constellation

Moving up a long way in funky financing, state-to-state bilateral deals in the nuclear power sector are now in high gear. Amounts in play are usually well above US $ 10 billion per project, and very complex mix-and-mingle methods and processes are used for their financing

From Put Options to Development Aid The French EDF ex-monopoly electricity supplier with the biggest number of nuclear reactors of any traded power company in the world, also the most debt-laden traded company in France, and with a share price down about 25% through Jan-Aug 2010, is using financial engineering to keep a foothold in the US nuclear power market.

Using debt instruments, EDF bought half of Constellation Energy Group’s nuclear business for US$ 4.5 billion in 2008, thwarting a takeover of Constellation by Warren Buffett’s MidAmerican Energy Holdings Co. At the time, Constellation set up an option for a later possible sale of non-nuclear plants to EDF. Since then, the financial crisis and unsure economic recovery have taken their toll on high-priced assets of highly indebted corporations, such as electric power plants.

EDF and Constellation are now in dispute over Constellation’s option to sell EDF non-nuclear plants for as much as US $2 billion. The so-called put option – implying the value of these plants would fall – is due to expire in December 2010. EDF is Constellation’s biggest shareholder, but if Constellation exercised its put option, EDF would incur more debt or lower-performing assets and view this as a hostile move likely to jeopardize their relationship. This would in turn compromise plans to build new nuclear projects in the near future.

Closely linked to this example of financial engineering, is the Congressional decision on what will be the last government aids for nuclear power plant building in the USA- a decision that would likely go to Constellation. If the corporation backs out of nuclear expansion, due to financial stress caused by EDF in retaliation for Constellation using its put option, the chance of it building another friendly atom plant may be low.

Moving up a long way in funky financing, state-to-state bilateral deals in the nuclear power sector are now in high gear. Amounts in play are usually well above US $ 10 billion per project, and very complex mix-and-mingle methods and processes are used for their financing. From development aid finance, to market plays wielding put-and-call options, and natural resource based offset and compensatory trading all have a role for Funky Town financing of the atom….

from Funky Town Finance Meets The Nuclear Renaissance :: The Market Oracle  by Andrew McKillop (Project Director, GSO Consulting Associates Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission )30 Sept 10,

Funky Town Finance Meets The Nuclear Renaissance :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website

September 30, 2010 - Posted by | business and costs, USA | , , , , , ,

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