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Financial Policy and Rating

The Hera Group’s financial structure is solid and in line with the financial policy objectives reported below:

  1. Interest-Rate Risk: definition and application of a hedging strategy in order to minimise the interest rate risk and obtain an appropriate combination between fixed rate and variable rate in the breakdown of debt in full compliance with IAS/IFSR.
  2. Debt Quality: consolidation of the short-term debt in favour of the long-term portion.
  3. Credit Facilities: attainment of abundant uncommitted and committed credit facilities so as to ensure sufficient liquidity to cover each financial commitment over the next two years at least.
  4. Financial Charges: control of the cost of money.

In this light, the following was carried out during the first half of 2010:

1.      Interest-Rate Risk: All interest rate risk hedging transactions in place are perfectly consistent with the underlying debt and in compliance with IAS standards. The portion of long-term debt at fixed rates is about 70% of the total.

2.      Debt Quality: Debt mainly consists of long-term loans with an average life of more than 10 years. In May 2010 the maturity of the Put Bond of Euro 100 million issued in 2007 was extended to 17 November 2020. This allowed us to maintain the portion of long-term debt at 97%.

The existing financing transactions do not provide for financial covenants, apart from the corporate rating limit by one rating agency only that is lower than “Investment Grade” level (BBB-).

  1. Credit Facilities. The credit facilities and the related financial activities are not concentrated on any specific financial backer but are distributed equally among leading Italian and International Banks with a use much lower than 30% of the total available.
  2. Financial Charges: in consideration of the consolidation of almost the entire debt in favour of the long-term portion, a cost of debt was recorded at an average global level of about 4.4%.

It should be noted that Hera S.p.A. has:

  • an outstanding ten-year Euro 500 million Bond with a fixed rate coupon of 4.125%, maturing in February 2016,
  • an outstanding ten-year Euro 500 million Bond with a fixed rate coupon of 4.5 %, maturing in December 2019,
  • an outstanding bond for Euro 149.8 million (20 billion Japanese Yen), maturing in August 2024,
  • an outstanding bond for Euro 100 million maturing in November 2020 (ex put bond),
  • four puttable bond issues for a total of Euro 500 million.

Concerning the puttable bond issues, it is not believed that a potential refinancing risk exists in case the put option is exercised by the lenders since (i) their expiration dates are not concurrent, but vary over time, (ii) the Business Plan of Hera SpA does not show a worsening of its credit, and therefore shows no difficulty in entering the capital markets over the next few years and, (iii) Hera SpA has at its disposal, in addition to liquidity, certain irrevocable and fully available back-up lines of credit totalling Euro 480 million in order to be able to deal with potential due dates.

Hera S.p.A.’s long term ratings are confirmed as "A3 Stable Outlook" for Moody’s and “BBB+ Stable Outlook” for Standard & Poor’s. The rating was reviewed by the Rating Agencies respectively in July and June of this year. One of the chief aims of the Group in defining its Plans is to continue to be committed to guaranteeing the maintenance/improvement of high rating levels.

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