September 29, 2017 / 4:11 PM / 21 days ago

Areva’s "NewCo" bonds resist downgrade

LONDON, Sept 29 (IFR) - Areva’s bonds defied an S&P downgrade, after the company transferred its debt to a new entity just under a year ago.

The company’s outstanding notes continued to trade above par, after S&P’s two-notch downgrade to B- from B+ on September 26. A €1bn 4.875% 2024 senior unsecured was quoted bid at a cash price as high as 111.40, according to Tradeweb data.

Though the bonds were issued by Areva, they were transferred into a new company, provisionally named “NewCo”, in November 2016, as part of its restructuring and recapitalisation efforts after years of losses.

An investor told IFR their separation from the French nuclear reactor manufacturer was probably why the notes have not reacted to news of the downgrade, pointing to NewCo’s S&P rating and outlook.

S&P rates NewCo BB with a positive outlook, arguing that it is not constrained by Areva’s credit quality, given Areva’s position as a minority shareholder.

Still, the investor deemed the trading levels of the notes “surprising”, as NewCo would not be completely free of the risks Areva faces.

“Given that the holdco (Areva) might have to file for bankruptcy, there is still some residual risk to NewCo,” he said.

S&P said it downgraded Areva over liquidity concerns due to potential litigation costs, putting the company on creditwatch negative.

The agency cited the partially unfavourable ruling by the International Chamber of Commerce Tribunal regarding the company’s Olkiluoto nuclear power plant in Finland, for Finnish utility TVO.

The case involves delays and cost overruns for the power plant, which was originally due to start operation in 2009.

“The ruling increases the likelihood that Areva will bear financial implications,” the agency said in a note.

“While the amounts are still uncertain, the payment under the €2bn TVO claim could be material and, in turn, challenge Areva’s already limited resources.”

Analysts also said that the EU framework regarding state aid prevents France from providing further equity to the company, weakening the state’s ability to provide support.

The French state injected €2bn of equity into Areva in July this year.

Areva hinted at a return to market earlier this year, holding a non-deal roadshow via JP Morgan in March, IFR reported at the time. However, a bond investor said issuance would have been unlikely until the capital increase. The company has been out of the market since March 2014. (This story will appear in the September 30 issue of IFR Magazine)

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