London, , December 17, 2002 -- Moody's Investors Service affirmed the Baa1 long-term issuer and senior unsecured debt ratings of Vivendi Environnement S.A. (VE)
The rating affirmation follows the continuing restructuring of VE's shareholder base through the decrease of Vivendi Universal's stake in VE to 20.4%, which has clarified the strategic intentions of VE's former parent with respect to it remaining investment in the company.
Moody's also notes that VE has strengthened its liquidity position and has adopted a more selective approach to investments. However, Moody's maintains a negative ratings outlook, reflecting our view that VE needs to make further improvements in these areas, including liquidity, increasing the availability and maturity of financing, and the evolution of VE's level of capital expenditures.
Moody's points out that the company has made significant progress since this summer in improving the terms and conditions of its financing arrangements by removing all ratings triggers that could lead to acceleration of facilities and by increasing the headroom under its financial covenants. Together with the EUR 1.5 billion rights issue in August 2002, disposal proceeds, and ongoing operating cash flows, this has strengthened the liquidity position of the company.
The rating agency also notes VE's continued work to extend the average maturity of its debt, while increasing the amounts and availability under, as well as extending the maturity of, its bank facilities. In Moody's opinion, this is considered important for VE's liquidity position in the context of certain scenarios, in particular a potential EUR 2 billion funding requirement resulting from the put option (until October 2008) in relation to the Spanish company Fomento de Construcciones y Contratas (FCC).
Should this put be exercised, VE would also have to make a public tender to FCC's 43% minority shareholders. The put option -- if and when exercised -- would result in a significant cash call within a relatively short period of time. Moody's believes that certain activities of FCC may be considered non-core from VE's point of view, which the company could evaluate to divest over time.
Moody's notes that the company is committed to manage the level of growth CAPEX in line with its free cash flows. In Moody's opinion, the achievement of this goal may be challenging as new concessions and contracts are sometimes unpredictable in terms of their up-front capital requirement. In this context, Moody's is also awaiting clarification on the company's final intention with respect to the possible acquisition of First Aqua/Southern Water. Given its existing leverage, Moody's will be monitoring the company's progress in becoming fully self-financing from 2003 onwards, and the extent to which increasing operating cash flows from new contracts lead to continuing improvements in debt protection measures and ultimately to free cash flow generation after CAPEX.
Vivendi Environnement S.A., headquartered in Paris, France, is the holding company of one of the world's largest integrated environmental and outsourcing services groups, with turnover of around EUR 29 billion in 2001.
Source: Moody's Investors Service
