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I AGREE
22 Jan 2020
Paris, January 22, 2020 -- Moody's Investors Service, (Moody's) has today affirmed
Red Eléctrica de España S.A.U. (REE)'s
Baa1 issuer rating and the Baa1/(P)Baa1 senior unsecured guaranteed debt
ratings of REE's financing affiliates. The outlook remains stable
for all ratings.
The rating action follows the implementation in January of the tariff
structure for the new 2020-2025 regulatory period as per the final
determination of the Spanish regulator, the CNMC.
A full list of affected ratings is provided towards the end of this press
release.
RATINGS RATIONALE
The affirmation of REE's Baa1 ratings reflects Moody's assessment
that, following the start of the new regulatory period, REE's
revenues for electricity transmission in Spain will continue to support
credit metrics commensurate with guidance for the current rating,
with funds from operations (FFO)/net debt and retained cash flow (RCF)/net
debt above the mid-teens and high single digits in percentage terms,
respectively.
On 19 December, the Spanish regulator CNMC approved the final tariff
methodology applicable to regulated electricity transmission for the five-year
regulatory period that commenced in January 2020. The regulator
determined that revenues for transmission activities would drop by 7.3%
across the period, driven by (1) lower allowed returns of 6.00%
and 5.58% during 2020 and 2021-25 respectively,
down from 6.5% in the prior regulatory cycle; and (2)
the full amortization of pre-1998 assets from 2024 onwards.
While the changes will reduce REE's regulated revenues, Moody's
anticipates that FFO to Net Debt will remain above the mid-teens
in percentage terms during the period, also supported by other revenues
derived from recent acquisitions in Hispasat and international transmission
assets.
In addition, REE's credit profile continues to be supported
by: (1) it's monopoly position as Spain's system operator and owner
of electricity transmission assets; (2) a largely predictable cash
flow profile underpinned by the dominant portion of revenues derived from
the regulated domestic transmission business; and (3) the developing
track record of the regulatory framework in Spain, recently evidenced
by the independent role of CNMC in the design and implementation of the
new 2020-25 regulatory framework.
REE's planned acquisition of a 50% equity stake in Argo Energia,
announced in November 2019 and representing a EUR382 million investment,
shortly after the acquisition of Hispasat evidences an increased appetite
for acquisitions. However, the to be acquired assets are
consistent, in terms of size and business profile, with the
company's business strategy for 2018-2022. Going forward,
Moody's expects REE to pursue more acquisitions outside of its core
Spanish regulated business, albeit of smaller magnitude and on a
selective basis such as to (i) maintain its ability to distribute dividends
and (ii) keep its net debt to EBITDA ratio in levels of 4x in line with
stated guidance.
As a result of its 20% ownership by SEPI (Sociedad Estatal de Participaciones
Industriales), a state company of Industrial participations of the
government of Spain (Baa1 stable), REE is considered a government
related issuer (GRI) but receives no ratings uplift from its baa1 BCA.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's view that REE's business
mix and financial profile will continue to support a credit profile aligned
with a Baa1 rating with FFO/ net debt and RCF/net debt above the mid-teens
and high single digits in percentage terms, respectively.
WHAT COULD MOVE THE RATING UP/DOWN
While positive ratings pressure is not currently expected, REE's
ratings could be upgraded should the group demonstrate a strengthening
of its financial profile such that FFO/net debt remains well above 20%
and RCF/net debt in the low teens in percentage terms.
Conversely, REE's ratings could be downgraded if the company's
financial profile were to deteriorate below Moody's current expectations
— as a result of (1) investments beyond current expectations,
which are not supported by commensurate balance-sheet strengthening;
(2) increased shareholder distributions; or (3) adverse regulatory
developments — such that FFO/net debt and RCF/net debt appeared
likely to fall persistently below guidance for the current rating i.e.
FFO/ net debt and RCF/net debt above the mid-teens and high single
digits in percentage terms, respectively
The methodologies used in these ratings were Regulated Electric and Gas
Networks published in March 2017, and Government-Related
Issuers published in June 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of these methodologies.
LIST OF AFFECTED RATINGS
Affirmations:
..Issuer: Red Electrica de Espana Finance B.V.
....BACKED Senior Unsecured Medium-Term
Note Program, Affirmed (P)Baa1
..Issuer: Red Electrica de Espana, S.A.U.
.... LT Issuer Rating, Affirmed Baa1
..Issuer: Red Electrica Financiaciones, S.A.U.
....BACKED Senior Unsecured Medium-Term
Note Program, Affirmed (P)Baa1
....BACKED Senior Unsecured Regular Bond/Debenture
, Affirmed Baa1
Outlook Actions:
..Issuer: Red Electrica de Espana Finance B.V.
....Outlook, Remains Stable
..Issuer: Red Electrica de Espana, S.A.U.
....Outlook, Remains Stable
Red Electrica Financiaciones, S.A.U.
....Outlook, Remains Stable
REGULATORY DISCLOSURES
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 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.
Items color coded in purple in this Press Release relate to unsolicited
ratings for a rated entity which is non-participating.
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.
Paco Debonnaire
AVP - Analyst
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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