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January 16, 2019

E.ON To Be Bigger, Stronger, And More Flexible After 2020

By: S&P Global RatingsS&P Global Ratings' today published a report detailing its assessment of how E.ON's plans to acquire diversified utility company innogy could impact the company and its creditworthiness (see " E.ON After 2020: Bigger, Stronger, And More Flexible," on RatingsDirect). If E.ON combines its network and supply activities with innogy's by 2020 as planned, E.ON will be Europe's largest energy supplier, with a regulated asset base of about €37 billion generating 70%-75% of its EBITDA and about 50 million customers."That said, we don't foresee the deal closing before the end of 2019, based on progress made since E.ON announced the plans in March 2018, and the legal and other hurdles still ahead," says S&P Global Ratings analyst Pierre Georges."But so far the transaction is on track, in our view."With assets predominantly in European countries with relatively high ratings and generally solid regulatory frameworks, the business risk profile of the combined entity will not only be stronger than its predecessors', but also stronger than other large European peers'. We therefore anticipate greater leverage headroom, since we would likely see adjusted funds from operations to debt of 14%-16% as commensurate with a 'BBB' rating (compared with 16%-18% currently), depending on the share of unregulated activities."Our final rating for the new entity will, of course, depend on completion of the deal as well as its ultimate capital structure and financial policy," adds Mr. Georges, "but we currently see more upside potential than downside risk."This report does not constitute a rating action.

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