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Fitch downgrades EDF’s Outlook to Negative

Fitch Revises EDF’s Outlook to Negative; Affirms IDR at ‘A-‘22 Apr, 2020
Fitch Ratings – Milan – 22 Apr 2020: Fitch Ratings has revised Electricite de France’s (EDF) Outlook to Negative from Stable, affirming the utilities group’s Long Term Issuer Default Rating at ‘A-‘. A full list of rating actions is below.

The Outlook revision mainly reflects a large production cut in nuclear generation in France related to the coronavirus pandemic, and ongoing problems with new nuclear, adding to an expected increase in leverage to slightly above our rating sensitivity on average for 2020-2022. It also reflects growing uncertainties about the nuclear-market reform in France – which we still expect to be finally implemented – in terms of timing and final impact.

KEY RATING DRIVERS

Production Cuts due to Pandemic: The pandemic and the lockdown have caused daily electricity demand to fall up to 20% yoy and depressed both spot and forward electricity prices. EDF has announced a cut of French nuclear production to 300TWh in 2020 and to 330TWh-360TWh for 2021-2022 (from our earlier assumption of 385TWh annually for the whole period), due mainly to the operational impact of the pandemic on the outages scheduled for these years and, to a lesser extent, to the drop in demand. While the announcement led to a rebound of forward prices 2021-2022 to around 45EUR/MWh, we do not expect EDF to fully benefit from it due to the ARENH reference price of 42EUR/MWh. For 2020, EDF is largely protected from the low price environment through hedging.

Large Working Capital Outflows: Another immediate consequence of the pandemic has been an increase in the number of end-customers struggling to pay their bills. In this respect, EDF will continue to supply power to households and small companies with overdue bills without penalties. ,……..

Company’s Reaction Uncertain: EDF has not yet communicated revised financial targets to the market, and we do not know what actions it will focus on to mitigate the impact of the pandemic.  …….

Problems with New Nuclear: At Flamanville, fuel loading would occur at best at end-2022 (compared with the previously estimated late-2019), implying an increase of construction costs by EUR1.5 billion (in 2015 real terms and excluding interests during construction) compared with previous estimates. HPC – the other key nuclear project of EDF – following another cost review in September 2019, sees an increase in construction costs of GBP1.9 billion-GBP2.9 billion (2015 real terms) compared with previous estimates. It remains to be seen if the pandemic will further increase the delay and cost overrun for these projects…….. https://www.fitchratings.com/research/corporate-finance/fitch-revises-edf-outlook-to-negative-affirms-idr-at-a-22-04-2020

April 23, 2020 - Posted by | business and costs, France

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