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Rating Action:

Moody's affirms EDP's ratings; maintains positive outlook

05 Jul 2022

Paris, July 05, 2022 -- Moody's Investors Service ("Moody's") has today affirmed the Baa3 long-term issuer and senior unsecured ratings, the (P)Baa3 senior unsecured MTN program rating, the Ba2 junior subordinate debt ratings and the Prime-3 commercial paper rating of EDP - Energias de Portugal, S.A. ("EDP"). Concurrently, Moody's has affirmed the Baa3 senior unsecured ratings, the (P)Baa3 senior unsecured MTN program rating and the Prime-3 commercial paper rating of its finance subsidiary EDP Finance B.V.. The outlook remains positive.

A full list of affected ratings is provided towards the end of this press release.

RATINGS RATIONALE

Today's rating action reflects the progress made by EDP in executing its strategic plan as well as the stability of the company's financial profile against the backdrop of an evolving operating environment.

EDP's ratio of funds from operations (FFO) to net debt was around 17% in 2021 (in line with the prior year's level), reflecting solid operating performance, notably in the wind and solar and the electricity networks businesses (47% and 36%, respectively, of 2021 EBITDA). The company added 2.6 gigawatts ("GW") of new renewable capacity in 2021; and has agreed EUR2.8 billion of asset rotation proceeds to finance part of its significant EUR24 billion capital spending over 2021-25. EDP has further secured a total of 6 GW of new renewable capacity to be commissioned over 2022-23, although the company faces delays to capacity additions due to supply issues and regulatory uncertainty in the US.

Given these short-term challenges and because of the severe drought experienced so far this year in the Iberian hydro power business (albeit partly mitigated by increased thermal power generation), Moody's expects that EDP will exhibit broadly stable credit metrics in 2022. Nevertheless, the positive outlook reflects Moody's expectation that the company's credit metrics could strengthen in the medium term as it continues to execute its strategy and hedges in the merchant power generation business in Iberia roll off, thus potentially allowing it to benefit from higher achieved wholesale power prices. Moody's notes, however, that the current high inflation environment raises risks of adverse regulatory or political intervention to support consumers' affordability, notably in Spain (Baa1 stable) where EDP generated 19% of its EBITDA in 2021.

The rating action further reflects that EDP's ratings continue to be supported by (1) the company's diversified business and geographical mix, with Portugal (Baa2 stable) accounting for less than one third of group EBITDA in 2021; (2) the stable earnings stemming from contracted generation and regulated networks, which account for over 75% of group EBITDA; (3) the low carbon intensity of its power generation fleet and the strategy to exit coal-fired power generation by 2025, which positions it well in the context of the energy transition; and (4) the group's track record of rotating assets to alleviate financing needs.

These factors are balanced against (1) the earnings volatility stemming from variations in hydro output in Iberia and, to a lesser extent, wind resource globally; (2) the exposure to volatile power prices of EDP's merchant generation and supply activities; (3) the execution risks associated with the group's investment programme; (4) EDP's relatively high dividend payout, which constrains financial flexibility; and (5) the minority holdings in the group, which add to complexity.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded if EDP's progress on the delivery of its strategy were to result in a sustained strengthening of its financial profile, with FFO/net debt in the high teens and retained cash flow (RCF) to net debt trending towards the low teens (both in percentage terms). Conversely, the outlook could be stabilised if credit metrics appear likely to remain persistently below the guidance for the higher rating.

Given the positive outlook, downward pressure on the ratings is unlikely. Nevertheless, the ratings could be downgraded if EDP's credit metrics fell below the guidance for the Baa3 rating, which includes FFO/net debt in the mid-teens and RCF/net debt in the low double digits (both in percentage terms).

LIST OF AFFECTED RATINGS

Affirmations:

..Issuer: EDP - Energias de Portugal, S.A.

....LT Issuer Rating, Affirmed Baa3

....Junior Subordinated Regular Bond/Debenture, Affirmed Ba2

....Commercial Paper, Affirmed P-3

....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa3

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: EDP Finance B.V.

....BACKED Commercial Paper, Affirmed P-3

....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa3

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

Outlook Actions:

..Issuer: EDP - Energias de Portugal, S.A.

....Outlook, Remains Positive

..Issuer: EDP Finance B.V.

....Outlook, Remains Positive

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Unregulated Utilities and Unregulated Power Companies published in May 2017 and available at https://ratings.moodys.com/api/rmc-documents/75129. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

COMPANY PROFILE

EDP - Energias de Portugal, S.A., headquartered in Lisbon, Portugal, is a vertically integrated utility company. It generated EUR3.72 billion of EBITDA in 2021.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 issuer/deal page for the respective issuer on https://ratings.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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Paul Marty
Senior Vice President/Manager
Infrastructure Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris, 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

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

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris, 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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