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Rescue package for Axpo – Sommaruga: “We want to prevent a conflagration by all means” – News

6 September 2022

The Federal Council has activated a rescue package for the energy supplier Axpo.
As a result, Axpo can access short-term subordinated loans of up to CHF 4 billion from the federal government. So far, the power company has not activated the credit line.
Axpo Holding AG had submitted an application to the Federal Council for temporary liquidity support due to the extreme price increases on the energy markets, according to a statement from the federal government.

According to Energy Minister Simonetta Sommaruga, the Federal Council wants to prevent worse things from happening with temporary state aid for Axpo. “We cannot afford for a large electricity company to become insolvent and take other companies with it,” she said at a media conference in Bern. The state government has one goal, namely to ensure the electricity supply in Switzerland. That is not easy with the enormous price fluctuations on the energy markets. “There have never been such high price jumps in Europe as now.”

There have never been such high price jumps in Europe as they are now.

“With the promised loans, the Federal Council wants to prevent Axpo from running into liquidity problems.” The application from the energy company was checked over the weekend. The Federal Council decided on this at an extraordinary meeting on Monday.

Legend:

Federal Councilor Simonetta Sommaruga next to Benoît Revaz, Director of the Federal Office of Energy SFOE, and Sabine D’Amelio-Favez, Director of the Federal Finance Administration FFA, during the Federal Council’s media conference on the activation of the rescue package for AXPO.

KEYSTONE/Peter Klaunzer

The Federal Council’s decision is based on an urgent law that the Council of States has already approved. The National Council will discuss this in the autumn session in September.

Risk premium, interest and dividend ban

The rescue package is not free, said Sabine D’Amelio-Favez, Director of the Federal Finance Administration (FFA) at the press event. On the one hand, there is a market interest rate of 1 percent per month to 2 percent per year. On the other hand, a risk premium of 4 to 8 percent is charged and 1 percent for subordination.

The credit line is subordinate to existing financing and does not require the deposit of security. Like equity, a subordinated loan serves as a buffer in the event of insolvency. In the event of insolvency, these loans are not repaid until senior creditors have been fully satisfied. The lenders therefore bear a higher risk. Such loans have correspondingly higher interest rates.

The three system-critical companies Axpo, Alpiq and BKW would also have to pay a lump sum of up to CHF 19 million each for being placed under the rescue package, said D’Amelio-Favez. So the credit is not cheap. This is necessary in order to avoid distortions of competition and because of subsidiarity. In addition, this ensures that the companies first turn to their shareholders – the cantons – and the credit markets.

The credit line is subordinate because existing lenders could withdraw without this measure. In this case, there would be a risk that the federal government would have to invest much more money. The obligation to provide information for those seeking protection is far-reaching and will become even more far-reaching when taking advantage of the loans. In addition, there is a ban on dividends in this case, said the director of financial management. According to Federal Councilor Simonetta Sommaruga, however, no bonus ban is planned for management.

The owner representatives of the electricity company Axpo are relieved that the rescue package has been activated. The fact that there is the possibility of applying for a credit line as a precaution is to be welcomed. Axpo has not yet sought any help.

The turmoil on the electricity markets is unique, according to the statement from the Axpo owners, i.e. the cantons of Zurich, Aargau, Schaffhausen, Glarus and Zug as well as EKZ, AEW, EKT and SAK. The securities to be deposited on the stock exchange would put electricity producers in great distress throughout Europe.

Any risk of a chain reaction with high financial and economic damage must be avoided. Axpo is systemically important for the secure power supply in Switzerland. As early as May, the Axpo owners said they would refrain from paying dividends until further notice.

According to the Energy Minister, the Federal Council was prepared for the situation. At the end of last year, the federal government received an application for state aid, at that time from the energy company Alpiq. The request was later withdrawn.

The power company Alpiq welcomes the activation of the Swiss energy rescue package by the Federal Council. This sends an important, confidence-building signal to the markets.

With the activation, Alpiq is also automatically subject to the protective shield with immediate effect. Alpiq continues to do everything it can to avoid having to claim federal aid, the group wrote in a statement on Tuesday.

The company’s financial scope for action has been strengthened with comprehensive operational measures in the energy business and additional financing on the credit and capital markets. The group went on to explain that Alpiq is doing everything it can to maintain the necessary room for maneuver on its own.