Universal Registration Document 2021

2D : Access to liquidity risk

Summary : The Group must at all times have sufficient financial resources to finance its day-to-day business activities and the investments necessary for its expansion and the appropriations to the dedicated portfolio of assets covering long-term nuclear commitments, as well as to deal with any exceptional events that may arise. Any downgrading of EDF’s ⁽¹⁾ financial rating could increase the cost of refinancing existing loans and have a negative impact on the Group’s ability to obtain financing. On 31 december 2021, the Group's net financial debt is EUR 42,988 million.

Criticality : ●● Intermediate

a) Main risks

The Group’s ability to raise new debt, refinance its existing indebtedness or, more generally, raise funds in financial markets, and the conditions that can be negotiated to this effect depend on numerous factors including the rating of the Group’s entities by rating agencies. The Group’s debt is periodically rated by independent rating agencies. Any downgrading of EDF’s financial rating could increase the cost of refinancing existing loans and have a negative impact on the Group’s ability to obtain financing. To meet liquidity needs, the Group issues securities on the market. The Group thus carried out a corporate hybrid bond issue on 26 May 2021 in the amount of €1.25 billion. The Group also issued senior Green Bonds on 23 November 2021 in the amount of €1.75 billion, topped up on6 December 2021 by €100 million. On 31 december 2021, the Group's net financial debt is EUR 42,988 million.

Nevertheless, the new ARENH volume allocations, the shutdown of nuclear power plants in France and the volatility of the electricity markets, in particular the liquidity calls of the trading activities, put the Group’s rating under pressure. This more uncertain financial outlook could lead to a further downgrading of the short- and long-term ratings by the rating agencies and impact the ability to access liquidity and its cost. The risk was made real by the downgrading of the Group’s financial ratings, adjusted following the measures announced on 13 January 2022 on changes to regulated electricity tariffs and on nuclear generation in 2022 (section 5.1.5.1.2 “Financial rating”). As a result, the criticality of the risk has been raised from “moderate” to “intermediate”.

b) Control actions

The EDF group was able to meet its financing needs by conservative liquidity management and has obtained financing on satisfactory terms.

A range of specific levers are used to manage the Group’s liquidity risk:

• the Group’s cash pooling system, which centralises cash management for controlled subsidiaries. The subsidiaries’ cash balances are made available to EDF in return for interest, so as to optimise the Group’s cash management and provide subsidiaries with a system that guarantees them market-equivalent financial terms;
• centralisation of financing for controlled subsidiaries at the level of the Group’s Cash Management Department. Changes in subsidiaries’ working capital are financed by this Department in the form of stand-by credit lines provided for subsidiaries, which may also be granted revolving credit from the Group. EDF and the investment subsidiary EDF Investissements Groupe (EDF IG), set upin partnership with the bank Natixis Belgique Investissements, also provide medium and long-term financing for EDF group operations outside France, arranged by EDF SA and EDF IG on a totally independent basis: each company sets its own terms, which are the same as the subsidiary would have in anarm’s-length market transaction;
• active management and diversification of financing sources used by the Group: the Group has access to short-term resources on various markets through programmes for French commercial paper (billets de trésorerie) and US commercial paper. For EDF, the respective ceilings for these programmes are €6 billion for the NeuCP programme and $10 billion for its US commercial paper;
• the repurchase of bond debt securities with bank counterparties for cash.

2E : Counterparty risk

Summary : Like all economic operators, the Group is exposed to possible default by certain counterparties (partners, subcontractors, service providers, suppliers or customers).

Criticality : ●● Intermediate

a) Main risks

A default by these counterparties may impact the Group financially (loss of receivables, additional costs, in particular if EDF is required to find satisfactory alternatives or take over the relevant activities or pay contractual penalties).

The Covid crisis may lead to a risk of some of the Group’s counterparties defaulting. The Group remains vigilant, particularly with regard to industrial counterparties that could be weakened by this downturn in the economic situation. To date, there has not been any discernible material impact on the Group’s commercial counterparties.

The energy crisis generated by the Ukrainian conflict has made the counterpart failure rise. In this context, the criticality of the risk has evolved from moderate to intermediate.

b) Control actions

For certain activities, the risk may be hedged by the use of margin calls.

Furthermore, the Group has a counterparty risk management policy which applies to EDF and all operationally controlled subsidiaries. This policy sets out the governance associated with monitoring this type of risk, and the organisation of counterparty risk management and monitoring. The policy also involves quarterly consolidation of the Group’s exposures.

At 30 September 2021, 89% of the Group’s exposure concerned “investment grade” counterparties, mainly as a result of the predominance of exposures generated by the cash and asset management activity, as most short-term investments concern low-risk assets.

(1) At the date of the Universal Registration Document, EDF's long-term rating is as follows: BBB with a negative outlook (S&P Global Ratings); Baa1 with a negative outlook (Moody's); BBB+ with a negative outlook (Fitch Ratings).