Moody’s puts CEZ on review

Moody’s Investors Service said it placed on review for downgrade the A3 senior unsecured ratings of CEZ, AS, along with the A3 rating on the notes issued by CEZ MH BV and the provisional A3 long-term rating on CEZ’s euro medium-term note program.

The downgrade review reflects CEZ’s exposure to a weakening power price environment, Moody’s said.

Current one-year forward base-load power prices in the Czech Republic, which are tied to German prices, have declined due to lower commodity prices in coal and gas, the agency said.

These are below the agency’s estimates, Moody’s said.

A prolonged period of low power prices will affect CEZ because market-exposed generation activities represent about 50% of the company’s EBITDA, the agency said.

As hedges roll off, lower power prices will likely result in a further reduction in the company’s operating cash flow in the next two- to three-years, Moody’s added.

This pressure on profitability will be exacerbated by the predominantly fixed-cost nature of CEZ’s generation fleet in the Czech Republic, the agency said.

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