Moody's rates British Energy bonds Ba3

Moody's Investors Service said it assigned a provisional long-term rating of Ba3 to the £550 million of senior unsecured bonds to be issued by British Energy Holdings plc.

It also assigned a provisional senior implied rating of Ba2 to British Energy Group plc. The outlook is stable.

Moody's said the rating assigned to British Energy Group reflects the following factors:

(1) Certain nuclear liabilities including certain decommissioning costs have essentially been transferred to the U.K. government, and the activities of British Energy are restricted as long as it remains non investment grade. As a result, British Energy should be able to focus on its core electricity generation and marketing activities, although the revised nuclear arrangements do not constitute a guarantee and are untested.

(2) Notwithstanding the recent recovery in wholesale electricity prices, and while the revised contracts with BNFL provide some downside protection, British Energy remains vulnerable to a period of low electricity prices. In addition, credit pressure increases over time as the asset base declines.

(3) The group's recent track record regarding availability and reliability of its power stations is poor, although it plans to improve this with its performance improvement program.

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