Approximately $500 million of debt affected
Moody's Investors Service has placed on review for downgrade the Ba2 corporate family rating (CFR), senior unsecured debt rating, and Ba2-PD probability of default rating (PDR) of Hrvatska Elektroprivreda d.d. ("HEP").
RATINGS RATIONALE 
"The review follows the downgrade of the Government of Croatia's long-term rating to Ba1 stable outlook from Baa3 negative outlook and will reassess the value of government support embedded within HEP's rating given the government's weaker credit quality," says Nicholas Stevens, Moody's lead analyst for HEP. "At the same time, Moody's will consider HEP's standalone credit profile in light of financial market developments in Croatia, the company's evolving liquidity profile, and its sizeable investment programme," adds Mr. Stevens.
The rationale for Moody's rating action on the Government of Croatia is set out in the following press release [http://www.moodys.com/research/Moodys-downgrades-Croatias-government-bond- rating-to-Ba1-from-Baa3--PR_265054].
Given its 100% ownership by the Government of Croatia, HEP falls within the scope of Moody's rating methodology for government-related issuers (GRIs). In accordance with the methodology, HEP's Ba2 ratings currently incorporate a two-notch uplift for potential government support to its standalone credit quality, the latter expressed as a baseline credit assessment (BCA) of b1. HEP has historically benefited from its relationship with the government, which has bolstered the company's ability to access the debt market on an ad-hoc basis, and Moody's notes that its next significant maturity is a HRK500 million (EUR66 million) bond in Q4 2013. Given the continued adverse economic environment in Croatia and Europe in general, HEP may be challenged to raise the substantial amount of new debt that it needs to fund its upcoming debt maturities and investments.
WHAT COULD CHANGE THE RATING UP/DOWN
The review will consider the extent to which HEP has been able to mitigate or address (1) its weak operating performance in 2011 and H1 2012; (2) the covenant waivers required on some of its debt obligations during 2012; and (3) its enduring liquidity strategy in light of the volatile operating environment.
Moody's currently considers it likely that any potential downgrade of HEP's rating will be limited to one notch. 
Source: bne