Electricite de France S.A.

The negative outlook on EDF reflects our view of increased operational risks materialized through significant cost deviations and commissioning delays at new nuclear projects, namely FLA-3 and HPC. We expect an increasing debt trajectory over 2019-2021 due to negative discretionary cash flows. We anticipate that the group's S&P Global Ratings-adjusted FFO to debt will stay at about 19%, and debt to EBITDA will remain close to 4.5x, in the context of a supportive power price environment. We could consider a negative rating action if we see no clear progress toward positively changing regulation for its existing French nuclear fleet (or on changes in market design). This would result in the persistent and high structural exposure of the group's cash flows

...A potential change of nuclear regulation in 2020-2021 of the group's existing French nuclear fleet could support the rating. We view positively management's clear and stated focus over the past few months on two structural pillars for the group's credit quality. These include potential changes to the regulation of its French nuclear activities in 2020-2021 and, if it materializes, the ensuing organizational changes. We note a strong alignment of interests on the regulatory need for these changes and on the ultimate maintenance of an integrated structure between the French government and EDF. We however understand a structural regulatory reform that is positive for EDF's nuclear operations will take time and will need to be agreed with the European Commission. Furthermore, we understand any proposal of group reorganization, as requested by the French state, would be linked to progress on the regulation and would most likely be delayed to first-semester 2020, as opposed to year-end 2019 initially....

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