British Energy, the UK nuclear power company, has suffered its second credit rating downgrade in a month on fears of bondholder losses.
Moody's rating for the company, which has secured emergency funding from the government but has yet to secure a future after September, fell to B2 from Ba3 on Monday.
The previous rating action - also a downgrade - was made just 10 days ago after the UK government agreed a £410m (€651m) working capital and collateral facility with British Energy that falls due on September 27. Investors fear that the company will default on its obligations and may become bankrupt after that time.
Moody's said: "The government's support to date has been limited to a short-term liquidity facility and no assurance has been given that bondholders will not suffer a loss." The rating agency left the new rating on review for downgrade, which implies that the next move will be another negative one.
Moody's analysts said: "The government has made it clear that protecting value for investors in British Energy is not its prime consideration." The agency concluded: "In the absence of a full guarantee from the UK government it is unlikely that this credit will return to investment grade." If the company default and bondholders suffer losses, the rating is likely to Caa or lower.
The downgrade took place on the same day that Moody's issued a gloomy forecast for bondholders of companies involved in distressed exchanges such as debt-for-equity swaps. The report, which focused on the dangers faced by bond investors in the distressed telecoms sector, came days after MobilCom, the German wireless operator, was rescued by an emergency overdraft from the state. MobilCom's future was thrown into doubt when majority owner France Télécom decided last week to stop funding the company.
Penny King Holdings Corporation, a Delaware Investment Holding Company.
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