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S&P Global Ratings sees higher litigation payments risk at Areva

S&P Global Ratings on July 31 placed French nuclear services group Areva SA's B+ rating for the €1.25 billion revolving credit facility on CreditWatch with negative implications.

The rating agency sees a higher risk of significant litigation payments following the unfavorable partial ruling of the International Chamber of Commerce Tribunal concerning ongoing litigation with Finnish electricity utility Teollisuuden Voima Oyj over the Olkiluoto 3 nuclear power plant project.

"It is unclear at this stage if there will be financial implications for Areva, and if so, how much this would turn out to be and under which timing this would need to be paid, but we see significant risk for the company's liquidity and capital structure," Global Ratings said.

S&P would consider whether and by what means the French government could provide additional support to the company since EU's legal framework regarding state aid prevents France from providing further equity to Areva until 2029.

The tribunal ruling came recently, after the state-run nuclear giant completed a €2.0 billion capital increase. However, in the wake of the ruling, the probability of material costs for Areva has increased, the rating agency noted.

"We continue to assess Areva's stand-alone credit quality at 'ccc+', based on weak liquidity as well as significant debt that could increase in case of litigation payments. At the same time, AREVA no longer owns the majority of shares of NewCo since the capital increase from the French state on July 27," Global Ratings said.

AREVA now owns 44% of new company's shares, with its stake valued at about €2 billion.

"We could lower our ratings on Areva by one or more notches in the next couple of months if we do not obtain sufficient clarity regarding Areva's contingency plans for paying the potential additional obligations and if the risks mentioned above are not mitigated," the rating agency said.

Meanwhile, the agency upgraded Areva spinoff NewCo to BB from B+ with a positive outlook.

The upgrade follows the completion of the €2.5 billion capital increase from the French state, which significantly improves its liquidity and capital structure.

"We believe that NewCo's credit quality may no longer be affected by potential credit stress at its former parent and therefore the credit rating on Areva no longer constrains that on NewCo.," Global Ratings said.

In its base case assumptions, the agency estimates that the spinoff would be able to generate EBITDA in the range of about €800 million to €950 million on average over 2017 to 2019.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.