The recent bid by France’s Electricite de France (EDF) for half of the nuclear business of Constellation Energy (NYSE:CEG) caused Fitch Ratings to downgrade the company’s Issuer Default Ratings. The long-term IDR is now ‘BBB’, and the short-term rating is ‘F2’.

Fitch is concerned that that if shareholders now decline the lower bidby Warren Buffett’s MidAmerican Holdings, Constellation would incur abreakup fee of $593 million.  The $1 billion preferred share investmentthat MidAmerican made would covert to a loan in December 2009, a $350million credit line from MidAmerican to Constellation would disappear,and MidAmerican would end up holding 9.9% of Constellation’s commonshares.

Fitch notes that the termination of the deal with MidAmerican "couldresult in additional calls for collateral by CEG counterparties(estimated by [Constellation] in its proxy materials at a potential$500 million."

The ratings agency thinks the $2 billion that EDF is offering forConstellation’s non-nuclear assets may run into regulatory hurdles.Fitch also has questions about how Constellation would spend the moneyif it accepts EDF’s bid, once it has paid off MidAmerican.

Constellation’s shareholders vote on the MidAmerican bid on December 23rd. Merry Xmas.

Paul Ausick
December 5, 2008

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