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Press Release: Fitch: German Nuclear Tax Refund to Aid Utility Rating Headroom

8 Jun 2017 8:43 am
 
 
The following is a press release from Fitch Ratings: 
 

Fitch Ratings-London-08 June 2017: A German court ruling that the government must refund EUR6 billion of nuclear fuel taxes to E.ON, RWE and EnBW should lead to additional headroom at existing ratings, but is unlikely to result in upgrades in the medium term, Fitch Ratings says.

The German constitutional court ruled on Wednesday that the implementation of the nuclear fuel tax, which was collected between 2011 and 2016, was unconstitutional. The amounts paid total EUR2.85 billion for E.ON (BBB+/Stable), EUR1.7 billion for RWE (BBB/Stable) and EUR1.45 billion for EnBW (A-/Stable). But the companies will receive 6% interest and will have to pay tax on the refunds, making the final amounts they will receive unclear as the tax calculations may involve historical recalculations due to tax credits or regional court decisions.

Our most recent forecast was for E.ON's nuclear- and lease-adjusted net leverage to average 4.4x for 2018-2020, which is very close to the 4.5x we see as the maximum for its 'BBB+' rating. The additional funds will reduce some of the risks associated with its deleveraging programme, particularly execution risk for its non-core asset sales, and could give the company the flexibility to scale back some parts of the plan, which also includes hybrid issuance.

We consider 'BBB' the maximum rating level for RWE. This reflects the fact that a large proportion of its cash flows consist of dividends from Innogy (BBB+/Stable) and that nuclear and lignite generation capacity is likely to decline, among other factors. RWE has not decided how the reimbursed funds will be spent. The company has said it intends to maintain a conservative balance sheet, but it may come under pressure from German municipalities, which are major shareholders, to increase its dividend payments.

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- We also consider any rating upside for EnBW to be limited due to structurally weak fundamentals in electricity generation and some execution risk on its proposed strategy. We estimate the refund could lower EnBW's leverage by as much as 0.5x-0.7x, depending on how the funds are used. EnBW also has local governments as major shareholders, but their past behaviour suggests they are less likely to push for dividend increases.

We do not at present have any indication about the timing of the payments. However, we expect the payments into the German nuclear decommissioning fund to take place as scheduled at the beginning of July 2017, pending EU approval. E.ON will pay EUR10 billion into the fund, including a EUR2.2 billion premium and interest, RWE will pay EUR6.8 billion including about EUR1.9 billion premium and interest, and EnBW will pay EUR4.8 billion including EUR1.3 billion premium. The decommissioning fund payments are already reflected in our rating cases and the companies have sufficient liquidity to make them.

Contact:

Ana Gaspar

- Director

- Corporates

- +44 20 3530 1601

- Fitch Ratings Limited

- 30 North Colonnade

- London E14 5GN

Artur Galbarczyk

- Associate Director

- Corporates

- +48 22 338 6291

Simon Kennedy

- Senior Analyst

- Fitch Wire

- +44 20 3530 1387

Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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June 08, 2017 04:43 ET (08:43 GMT)
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