TEXT-S&P:France's Veolia outlook to neg, 'BBB+/A-2' rtgs afrmd

(The following statement was released by the rating agency)

Oct 10 -

Overview

-- We believe French environmental services group Veolia Environnement S.A.'s (Veolia) massive cost-cutting plans will be hampered by economic conditions that are weaker than we anticipated.

-- We are revising our outlook on Veolia to negative from stable and affirming our 'BBB+/A-2' ratings.

-- The negative outlook reflects our opinion that Veolia's credit metrics could fall short of our expectations if the group failed to implement its cost-cutting, growth, and disposal plans, or to adapt to the potentially more-adverse conditions.

Rating Action

On Oct. 10, 2012, Standard & Poor's Ratings Services revised its outlook to negative from stable on French environmental services group Veolia Environnement S.A. (Veolia). At the same time we affirmed our 'BBB+/A-2' long- and short-term corporate credit ratings.

Rationale

The outlook revision reflects our view that poor economic conditions and the execution risk inherent in Veolia's major strategic plan could hinder a turnaround in the group's cash flow generation and prevent the strengthening of its credit metrics to levels we deem commensurate with the ratings within the next 12-24 months. We view a ratio of adjusted funds from operations (FFO) to debt above 20% as commensurate with our assessment of Veolia's diluted business risk profile owing to the structural erosion of its profitability and strategic adjustment toward emerging and industrial clients.