* Levy says hybrids a strain on EDF’s balance sheet
* Says other EU utilities less exposed to hybrids
* Hybrids force EDF to maintain high credit rating
By Geert De Clercq
PARIS, April 5 (Reuters) - 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.
EDF announced the Hinkley Point project in October, 2013, but struggled to find partners and financing and has still not made the final investment decision to proceed. French Economy Minister Emmanuel Macron said earlier this month a final investment decision would be taken by early May.
Hybrids were highly popular in recent years for bolstering balance sheets and funding mergers and acquisitions and EDF was one of Europe’s top hybrid issuers.
Last year, some 27 billion euros were issued in the euro hybrid market, but the instruments have fallen out of favour this year with virtually no issuance so far.
EDF’s Chief Financial Officer Thomas Piquemal - who has spearheaded EDF’s hybrid issuance - resigned last month over worries that the Hinkley Point project would put too much strain on EDF’s finances. ($1 = 0.7067 pounds) (Editing by Greg Mahlich)