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Financial Policy and Rating

Despite the fact that the repercussions of the economic and financial crisis were still being felt throughout 2009, the Group managed to avoid the effects of the general reduction in cash flow, and to keep the considerable general increase in interest rate spreads under control.

The financial policy objectives that the Company pursues are still as follows:

  1. Interest-Rate Risk: definition and application of a strategy for hedging the interest rate risk which is accurate and consistent with almost complete coverage of the long-term debt at a fixed rate and in full compliance with IAS/IFRS3 standards.
  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 in 2009:

  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 new long term transactions were issued at fixed rates so the portion of long-term debt at fixed rates is 91% of the total.
  2. Debt Quality: The following re-financing transactions were put in place in 2009 resulting in 96% of the portion of long term debt to the total to be reached.
    • At the end of July, a bond was issued with a 15-year maturity, for a total of 20 billion Japanese Yen, at the same time hedged for about Euro 150 million to eliminate exchange rate risk. The bond was fully subscribed to by a single investor, to be repaid with a six-month, 2.925% coupon.
    • At the end of November 2009, a ten-year bond was successfully launched for Euro 500 million, with demand six times higher than the amount offered, allowing the originally expected margin of 120-125 bps to be reduced to 115 basis points on the ten-year midswap. The bond was placed with a coupon of 4.5% at the price of 99.28.
    These transactions do not provide for financial covenants either, apart from the corporate rating limit by one rating agency only that is lower than "Investment Grade" level (BBB-).
  3. Credit Facilities. The credit facilities and related financial assets are not concentrated with any one specific financial backer, but are distributed equally among leading Italian and International Banks with a use much lower than the total available.
  4. Financial Charges: in spite of the considerable increase of the spreads and considering the debt consolidation in favour of the long-term portion, Hera has been able to keep the cost of money to an overall average level of 4.2%, well under the market quota.

Hera S.p.A. has an outstanding bond of Euro 500 million with a fixed-rate coupon of 4.125% maturing in February 2016, in addition to five puttable bond issues for a total of Euro 600 million. The potential implicit refinancing risk if the put option is not exercised by the lenders is not considered to be risky since (i) the loans in question may be considered similar to 3- or 5-year loans with bullet repayment, (ii) their expiration dates are not concurrent, but vary over time, (iii) the Business Plan approved by the Board of Directors 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 (iv) Hera Spa has at its disposal 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. maintained an "A2 negative" long-term rating from Moody's and an "A negative" rating from Standard & Poor's. The Group intends to continue to do all in its power to maintain these outstanding rating levels in the future.

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