Moody's Downgrades E.ON Debt

Ratings agency Moody’s has downgraded German utility E.ON's long term senior unsecured ratings by one notch, to Baa2, it said March 15. The outlook however is changed to stable from negative. Following the demerger of Uniper, it said E.ON "derives a material proportion of earnings from fairly low risk regulated and contracted businesses in distribution and renewables under well-established regulatory regimes."

Moody’s says that the rating action reflects its view that measures announced by E.ON will not be sufficient to restore the company's financial profile in line with the rating agency's guidance for a Baa1 rating of credit metrics of funds from operation (FFO)/net debt of upper teens and retained cash flow (RCF)/net debt of mid-teens in percentage terms, over the next 12 to 18 months.

Among its problems are the nuclear storage obligations as well as a challenging commodity price environment. It also says that E.ON remains "rather highly leveraged post the spin-off of a majority stake in Uniper, even after taking into account a solid underlying operating performance during 2016."

The effect has been exacerbated by a macroeconomic environment characterised by low interest rates and rising inflation which have affected the size of the residual, shorter dated, nuclear decommissioning liabilities, and, to a lesser extent, pension liabilities in the company's accounts.

"A speedy disposal of the residual stake in Uniper and/or the application of the proceeds of any successful litigation to debt reduction, would accelerate the company's financial recovery," it said.

E.ON UK this week put up its gas and power prices for retail consumers, blaming some factors beyond its control, such as government environmental and social schemes to support renewable energy; and network costs. It said this was the first rise in three years for some categories of consumer, during which time there had been two gas price cuts.

(Credit: E.ON)

Earlier this week, among a series of staff changes in a number of countries, E.ON announced that Michael Lewis will be the CEO of E.ON UK effective April 10, succeeding Tony Cocker (pictured, above), who has decided to retire from E.ON to pursue a portfolio career at end of July 2017. Lewis has been CEO of E.ON Climate & Renewables since 2015. He joined E.ON in the UK in 1993 and has played an instrumental role in expanding E.ON’s renewables business. Tony Cocker has worked for E.ON for over 20 years and has been the company’s UK CEO since September 2011, E.ON said. 

William Powell