London, March 8, 2002 -- Moody's Investors Service has affirmed the A3 long-term senior unsecured rating of Vivendi Environnement S.A (VE), following the company's announcement today relating to its involvement with a proposed transaction that involves the acquisition of Southern Water, currently a subsidiary of Scottish Power, by First Aqua.
The rating affirmation is based on Moody's preliminary assessment of the potential exposure to VE resulting from the transaction. While, on its own, the transaction is of a size that can be accommodated within the current rating, it would nonetheless also have to be assessed in the broader context of the company's expected capital expenditures and financial debt and earnings development in the medium term, Moody's added.
In this respect, the rating agency noted VE's recent announcement of its intention to divest non-core assets in the US with an expected disposal value in the area of US$1 billion. While there is no legal obligation for VE to purchase Southern Water from First Aqua at this point, the transaction may nevertheless lead to a cash call on VE in the form of preference shares, Moody's said.
The possible requirement on VE to acquire such preference shares, for up to GBP374 million, is outside the control of the company. There is a high probability that this transaction may lead to a financing commitment on the part of VE, Moody's said; this could take the form of VE either buying Southern Water itself or having to purchase preference shares in the structure.
In the former case, any purchase of Southern Water by VE would be structured on an effective non-recourse basis, although the rating agency would look to any contingent obligations that such structure may imply, Moody's said. In the latter case, VE would be free to sell on the preference shares to third parties should it decide that it does not want to hold such a financial investment.
Vivendi Environnement, headquartered in Paris, France, is the holding company of one of the world's largest integrated environmental and outsourcing services groups. In 2001, the VE group had revenues of EUR29.1 billion and reached a market capitalisation of around EUR12.6 billion on 7 March 2002.
