Essent's response to: "Dutch Essent May Face US$ 1.0 Bln Claims"

On January 23, 2006, Fitch Ratings published a special report on the credit implications of possible developments in the ownership structure of Dutch energy companies, developments also known as ownership unbundling. 

Fitch Ratings does not rate any debt paper issued by Essent NV or one of its Group Companies. When writing the report, Fitch Ratings has not approached us for comments. 

We support the overall conclusions of the report that the unbundling proposals of the Dutch minister of Economic Affairs represent a substantial risk to the credit position of Essent; a risk that Essent has flagged from the beginning of the discussion on unbundling in 2004. Nevertheless, we also note that certain details are in our view not correctly reflected in the report. Specifically, we want to comment here on the chapter Effect on Issue Ratings. 

Fitch Ratings states that Essent "...pre-empted possible triggering of default by asking bondholders to waive the event of default clause in relation to unbundling" and that Essent has "...legal provisions..." in its "...documentation which obliges bonds to follow the issuer or 'principal subsidiary' i.e. distribution assets". Both statements are not correct. We didn't approach those bondholders and the documentation does not contain such legal provisions.
Nevertheless, if ownership unbundling would in the future become reality, Essent will do its utmost to mitigate any adverse impact that might thereby arise and to safeguard the interest of the bondholders and other financiers. Essents intention will be to make sure that the rated debt would follow the network activities. 

On the eve of a political discussion in the Lower House of the Dutch Parliament on 13 February 2005, Essent is still of the view that the unbundling proposals will not achieve the proposal's aspired objectives, and in fact has the potential to create substantial inefficiencies in the Dutch energy sector, could jeopardise the reliability of the energy supply, and could lead to considerable and unjustified costs for Dutch consumers and energy companies, the shareholders of the Dutch energy companies and Dutch tax payers. 

Please see also our other publications regarding the unbundling discussion on this website. 

Published: 20 January 2006