EnBW rating slips

20 April 2004 - Standard & Poor's Ratings Services (S&P) has lowered its long-term corporate credit rating on Germany based energy utility Energie Baden Wuerttemberg AG (EnBW) to 'A-' from 'A'.

S&P say that the outlook is 'stable' for EnBW but at the same time it has lowered its short-term ratings on the company to 'A-2' from 'A-1'.

"The rating actions reflect the deterioration of the company's financial profile over the last couple of years following a series of acquisitions and a formerly aggressive supply strategy," said Standard & Poor's Infrastructure Finance credit analyst Ralf Etzelmueller. "Results and credit protection measures in 2003 were negatively affected by one-off restructuring charges, a portion of which will involve a cash outlay over coming years, and continued delays to an expected capital increase."

The new management team's focus since May 2003 on controlling operating and investment costs is positive but ambitious. Despite benefits from strong minority shareholders, Electricité de France (AA-/Negative/A-1+) and OEW, a group of public sector entities, uncertainty exists regarding the company's ultimate shareholder structure. Furthermore, there have been a succession of management changes and the group's CEO has continued to undertake the CFO role nine months after the departure of the previous CFO. These factors create a degree of uncertainty about the company's future profile.

The stable outlook reflects the expectation that management will maintain its focus on cost-cutting and earnings and cash flow improvement, and includes the potential for moderate capital increases from existing owners in the short term. In the absence of any major disposals, flexibility for acquisitions is limited, in light of the high debt burden and the company's rating targets.

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