European utilities’ credit rating downgrades to continue in 2002, Moody’s reports

London, U.K., Jan. 14, 2002 — Moody’s Investors Service reported today that credit rating downgrades among European utility companies will likely continue in 2002.

In its annual review and outlook for European corporate credit, Moody’s says that it expects, “2002 to continue to be dominated by mergers and acquisitions activity in the power sector and stability in the gas sector.” In the water sector, Moody’s anticipates further highly leveraged refinancing structures based on the “Glas” example.

In a teleconference today, Stuart Lawton, Moody’s European managing director of Project Finance and Utilities, said, “although downgrades will continue in 2002, European utilities continue to be underpinned by stable and predictable cash flow, a lack of substitution risk, and a watchful regulatory environment.”

“This industry’s main focus in 2001 was centered around M&A activity in the sector. Nearly all rating changes last year were related to the ongoing consolidation in the European power sector,” said Lawton.

Lawton added, “the shrinking number of possible targets may lead European utility companies to encounter serious risks, such as overpaying for few available assets or turning their attention to higher-risk assets and away from core strategic markets. These factors could negatively affect bondholders.”

Since 1996, Moody’s average ratings for European investment-grade utilities, has fallen one notch from a mean rating of A1 to A2. The number of European investment-grade utility companies rated by Moody’s has grown from 25 in 1996 to 65 in 2001.

For more information, please refer to Moody’s annual credit report on Corporate Europe, entitled “2001 Review and 2002 Outlook – Corporate Europe: Credit Deterioration To Continue In 2002, Albeit At Slower Pace”.

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