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Ministry of Finance and Economic Affairs

Landsvirkjun enters into a Response Agreement with the Icelandic State

News release No 39/2009

Because of the uncertainities in the financial markets, Landsvirkjun and the Icelandic state have entered ito a response agreement.

The Icelandic economy has been dominated by great uncertainties from the collapse of the commercial banks in October of last year. During that same period, international financial markets have been marked by great uncertainties, resulting in rating agencies lowering the credit ratings of numerous companies. The credit ratings of the Icelandic Government and of Landsvirkjun are no exception, as they have been lowered to BBB by the credit rating agency Standard & Poor’s (S&P) and to Baa1 by the agency Moody’s Investor Service.

Landsvirkjun has been assigned a credit rating since 1988 for the purpose of facilitating the Company’s access to borrowed funds, as Landsvirkjun has principally financed the construction of power plants through foreign markets. The rating agencies have from the beginning assigned Landsvirkjun the same credit rating as the one assigned to Iceland’s sovereign credit.

Foreign entities have some concern with respect to the systemic risk of the Icelandic economy because of the uncertainties prevailing in the international financial markets. On 8 May, S&P placed Landsvirkjun on a watchlist of companies with negative outlooks. The reasoning for this places emphasis mainly on the uncertainty connected with whether or not the Icelandic State will intervene in a timely manner to provide aid if the Company encounters financial problems. In order to respond to and for the purpose of reducing the concerns of foreign entities, Landsvirkjun and the Icelandic State have entered into a Response Agreement. The Agreement provides for, in the event that Landsvirkjun does not have sufficient funds to meet loan interest payments or instalments, the Central Bank of Iceland to hand over foreign currency to the Company and, in return, Landsvirkjun will hand over kronur or bonds to the Central Bank. The Agreement amount is a maximum of USD 300 million, and the expiry date of the Agreement is 1 July 2011.

The liquid asset holdings of Landsvirkjun presently stand at USD 90 million, but in addition, the company has access to a foreign revolving credit facility. The revolving credit facility is provided by a syndicate of fourteen international financial institutions, including Barclay’s, Citigroup, JP Morgan and Société Générale. Landsvirkjun therefore does have broad access to foreign currency liquid assets which, in addition to cash from operating activities, will suffice to pay interest and instalments through 2010. The risk, therefore, is minuscule that the Response Agreement will have to be invoked.


Ministry for Finance, 19 June 2009


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