Hybrid debt issued by EDF creates a strain on the state-controlled utility’s balance sheet and financing ability, its chief executive officer said on Tuesday. Jean-Bernard Levy said in a hearing in French parliament that EDF had issued a huge amount of hybrid debt – 10 billion euros in total – and that other European utilities have been less “greedy” for this form of debt. He added that this makes EDF’s balance sheet somewhat more fragile due to the fact that the hybrid debt forces it to maintain a higher credit rating than strictly necessary. “It is a bit of an Achilles’ heel, our hybrid debt,” he said. EDF has net debt of more than 37 billion euros. This does not include its hybrid debt, which is accounted for partly as equity by some credit agencies. Hybrid debt typically has equity-like characteristics, such as the ability of the issuer to defer coupon payments under certain circumstances. Since EDF is 84.5 percent state-owned, credit agencies give EDF a rating “uplift” of several notches, which keeps its debt well within investment grade. But its hybrid debt does not enjoy that uplift and a downgrade of one or more notches could push EDF’s hybrids closer to non-investment grade, which would mean the utility would have to refinance it at higher interest rates. In October ratings agency Standard and Poor’s warned that it may lower its ‘A+’ credit rating for EDF if the French utility presses ahead with its 18 billion-pound ($25.5 billion) project to build two nuclear reactors at Hinkley Point in Britain.
Reuters 5th April 2016 read more »