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Rating Action:

Moody's affirms Alliander's Aa2/P-1 ratings, stable outlook

10 Apr 2017

London, 10 April 2017 -- Moody's Investors Service, ("Moody's") has today affirmed the Aa2/P-1 issuer rating of Alliander N.V. (Alliander). Concurrently, the agency affirmed the Aa2 long-term senior unsecured debt ratings of Alliander N.V., the (P)Aa2 senior unsecured MTN program and the Aa2 guaranteed senior unsecured debt ratings of its finance subsidiary Alliander Finance B.V., as well as the A2 junior subordinate rating on the EUR500 million basket C hybrid (the Hybrid), issued by Alliander in 2013. The outlook on all ratings remains stable.

The rating action reflects Moody's view that Alliander's medium-term business and financial risk profile will continue to position the company in line with the requirements for its current rating category. The affirmation takes into account (1) the recent regulatory settlement for the period 2017-21, which will result in lower returns in line with the rating agency's expectations; and (2) the successful conclusion of the asset swap with Alliander's peer network operator Enexis Holding N.V. (Enexis, Aa3 stable) in 2016.

RATINGS RATIONALE

Alliander's Aa2 long-term issuer rating is underpinned by a combination of (1) the low-risk business profile of Alliander's domestic electricity and gas distribution network operations; (2) the well-defined and transparent Dutch regulatory framework; and (3) the company's balanced financial profile, with relatively modest leverage for the sector and solid liquidity position.

The current price control period for both electricity and gas distribution runs from January 2017 to December 2021. In September 2016, the Dutch energy network regulator published its final determination for the period, which includes a gradual reduction in the allowed return to 3.0% (pre-tax, real) by 2021 from 4% at the beginning of the regulatory period in 2017.

While the reduction in allowed returns will decrease operating cash flows, Alliander has demonstrated its ability to fund comfortably around the cost of debt embedded in the return allowance.

Over the medium term, Moody's expects Alliander to continue to exhibit strong financial metrics, although operational cash flows will likely be lower due to (1) the reduction in allowed returns; (2) the composition of the asset swap with Enexis, which reduces the overall number of customers for Alliander, albeit offset by a compensation payment; and (3) increased investment due to the smart metering programme. The rating agency forecasts Alliander to maintain funds from operations (FFO)/net debt above 25%, and retained cash flow (RCF)/net debt in excess of 20% over the medium term.

Finally, the Aa2 rating incorporates a two-notch uplift from Alliander's stand-alone credit quality, reflecting the likelihood of extraordinary financial support being provided by its owners, the largest of which is the Province of Gelderland with around 45% holding, if this were ever required.

RATING OUTLOOK

The stable outlook for Alliander reflects our expectation that the company will maintain focus on its regulated business and continue to follow its balanced financial policy, thus, allowing it to maintain a financial profile in line with the guidance for the current rating.

WHAT COULD CHANGE THE RATING -- UP/DOWN

FFO/net debt comfortably above the mid-thirties and RCF/net debt permanently in the high-twenties in percentage terms may put upward pressure on the ratings, provided that such metrics are combined with a still conservative approach to the business, with continuing focus on the core regulated activities, and a prudent financial and dividend policy.

The rating could be considered for downgrade if Alliander failed to maintain the following minimum credit metrics: FFO/net debt above 25% on a sustainable basis and net debt/fixed assets below the low forties in percentage terms. Downward rating pressure could also arise if the potential support from Alliander's local government shareholders were to be seen less likely to be obtained or if their credit strength were to weaken.

The methodologies used in these ratings were Regulated Electric and Gas Networks published in March 2017, and Government-Related Issuers published in Ocotber 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Alliander N.V. owns and manages low and medium voltage electricity and gas distribution networks in the Dutch provinces of Gelderland, Noord-Holland, Flevoland and large parts of, Friesland and Zuid-Holland. The company is the largest electricity and gas network operator in the Netherlands with approximately 3.1 million electricity and 2.5 million gas connections and it has a combined market share of 35% in the Netherlands.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Stefanie Voelz
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Neil Griffiths-Lambeth
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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