London, 18 February 2014 -- Moody's Investors Service has today announced multiple rating actions
on the following Italian utility issuers: ACEA S.p.A.,
Compagnia Valdostana delle Acque S.p.A. (CVA),
SNAM S.p.A. and Terna - Rete Elettrica Nazionale
S.p.A..
Today's rating action on these issuers follows Moody's change
in outlook on the Baa2 rating of the Government of Italy to stable from
negative on 14 February 2014. For more details on the rationale,
please refer to the press release (https://www.moodys.com/research/Moodys-changes-outlook-to-stable-on-Italys-Baa2-government-bond--PR_292815).
The ratings of A2A S.p.A., ENEL S.p.A.
(and its Spanish subsidiary, Endesa S.A.), Edison
S.p.A. and Hera S.p.A. are unaffected
by this rating action. An overview of unaffected issuers is provided
later on in this press release.
-- OVERVIEW OF AFFECTED ISSUERS:
- Acea: Moody's has changed to stable from negative the outlook
on Acea's Baa2 senior unsecured and issuer ratings. Concurrently,
Moody's has affirmed these ratings.
- Compagnia Valdostana delle Acque: The outlook on the rating
has been changed to stable from negative. The issuer rating has
been affirmed at Baa1.
- SNAM: The outlook on the ratings has been changed to stable
from negative. Concurrently, Moody's has affirmed the
Baa1 issuer and senior unsecured ratings, as well as the provisional
(P)Baa1 rating assigned to SNAM's EMTN programme.
- Terna: The outlook on the ratings has been changed to stable
from negative. The issuer rating and the senior unsecured debt
ratings have been affirmed at Baa1, as well as the EMTN programme
at (P)Baa1 and Terna's short-term P-2/(P)P-2 ratings.
RATINGS RATIONALE
The above actions follow the stabilisation of the government of Italy's
rating and the consequent reduced pressure on the aforementioned issuers
as a consequence of their linkages with the sovereign rating. The
stabilisation of the outlook on the ratings of these issuers reflects
also a generalized enhancement of their liquidity conditions, which
follows a material improvement in their access to the debt markets.
- ACEA:
Moody's decision to change the outlook to stable from negative was
triggered by the change in outlook on the Government of Italy's
Baa2 rating to stable from negative and the resulting lower pressure on
Acea's rating as a consequence of its linkage with the sovereign
rating. The rating agency's decision also follows further
evidence of improvement in the company's financial and liquidity
profile during the second half of 2013 and the ongoing positive evolution
of the domestic regulatory environment for water networks.
Acea's Baa2 rating is driven by (1) the company's improved
liquidity profile, following the extension of its debt maturities,
the increase in the size of its committed facilities and the recent issuance
of a EUR600 million bond; and (2) the favourable regulatory developments
on Italian water networks and the recent determination issued by the Italian
Authority (AEEG), which confirms the transitory period full cost
recovery principle, while completing the regulatory framework with
overall positive provisions from a credit perspective. Moody's
rating takes into account Acea's low business risk profile and the
diversified portfolio of its regulated activities, which accounts
for approximately 80% of the company's consolidated EBITDA.
However, the rating also recognises (1) Acea's vulnerability
to still negative domestic macroeconomic trends, which are affecting
the company's operating environment; and (2) its limited, albeit
still significant, exposure to unregulated businesses (waste management
and energy supply).
Preconditions for a more favourable positioning of Acea's rating
include (1) a continued improvement of Acea's financial and liquidity
profile to a level exceeding Moody's ratio guidance (i.e.,
funds from operations (FFO)/interest coverage of 3.5x-4.5x,
an FFO/net debt ratio in the low to high teens in percentage terms;
and a retained cash flow/net debt ratio in the low double digits to mid-teens
in percentage terms on a sustainable basis), which the rating agency
considers commensurate with Acea's Baa2 rating; and (2) a further
improvement of the domestic macroeconomic scenario, as well as of
public finances, as captured by an upward move of Italy's
sovereign rating.
Downward pressure on Acea's rating would develop as a consequence of a
weakening of the company's financial profile to levels permanently below
Moody's ratio guidance. Any downward movement in the Italian
government's rating would also likely result in a corresponding
adjustment of Acea's rating. Acea's rating is also based on (1)
regulatory stability in Italy; and (2) the company not being subject
to discriminatory fiscal measures and/or political interference from the
government or the municipality of Rome. Evidence that Acea has
significant exposure to these risks beyond current expectations would
result in negative pressure on the company's rating.
- CVA:
Moody's decision to stabilize CVA's ratings follows the change
in outlook on the Government of Italy's Baa2 rating to stable from
negative and the resulting lower pressure on CVA's rating as a consequence
of its linkage with the sovereign rating. Notwithstanding CVA's
exposure to challenging domestic power markets, consequent to its
niche hydroelectric generation profile, the rating agency notes
that CVA has very low leverage, a sustainable debt structure,
a solid liquidity position and a balanced financial policy. All
these points would translate into a better credit positioning than that
reflected in CVA's Baa1 standalone rating, even taking into
account an expected decline in 2014-15 operating cash flows,
essentially due to a further anticipated pressure on Italy's wholesale
electricity prices. However, since CVA is still fully exposed
to the Italian macroeconomic and financial environment, the rating
agency continues to consider the current one-notch differential
with the sovereign rating as appropriate. Therefore, an upward
movement of the latter would be required before CVA could become eligible
for a rating upgrade.
Any deterioration in Italy's creditworthiness, as captured
by a downward movement in the Italian government's rating,
would likely result in a corresponding adjustment of CVA's rating.
Negative rating pressure could also develop in case of (1) a material
deterioration of CVA's financial profile at a level materially below with
Moody's guidance (FFO/net debt ratio below 40% and an RCF/net
debt ratio below the low thirties in percentage terms); (2) an aggressive
investment strategy into riskier generation assets and/or type of activities;
and/or (3) a weakening of CVA's liquidity position as a result of large
cash outflows or a deterioration in the quality of the company's portfolio
of liquidity investments.
- SNAM:
The change in outlook for SNAM from negative to stable reflects Moody's
acknowledgement of the close linkages between SNAM's credit quality
and that of the government. SNAM's Baa1 long-term
rating, which Moody's affirmed today, continues to be
driven by the low business risk profile associated with its monopoly-like
gas operations, carried out under a regulatory framework which this
rating agency sees as generally transparent, although not immune
from political interference.
The rating also recognises the stability and predictability of SNAM's
cash flows, given its very limited exposure to volume risk and the
generally timely cost-recovery mechanisms characterising the tariff
methodologies in Italy, as confirmed by the recently concluded regulatory
review for gas transport, regasification and distribution activities.
Furthermore, SNAM's rating factors in the company's strong
liquidity position and the achievement of its targeted funding structure
evolution following the company's unbundling from its former parent
Italian oil & gas group ENI.
The rating also reflects the requirements associated with SNAM's
investment plan for 2013-16, including approximately EUR6.9
billion of capital expenditure and investments, and approximately
EUR3.4 billion of expected cumulative dividend distribution,
assuming a stable DPS. While Moody's expects SNAM's
investment plan to have a drag effect on the company's main credit
metrics, the rating agency anticipates that SNAM's ratios
bottomed out in 2013 and will start to improve in 2014, benefiting
from a 4% reduction in SNAM's corporate tax rate, a
flat-to-slightly positive evolution of its operating results
and lower total investments when compared to 2013 levels.
Preconditions to a more favourable positioning of SNAM's rating
include (1) an improvement of the company's financial profile to a level
exceeding Moody's ratios guidance (FFO/interest coverage of between
3.0x-4.0x, FFO/net debt of 10% to the
low teens, RCF/net debt of 6% to the high single digits and
net debt/fixed assets not higher than 70%), which this agency
considers commensurate to SNAM's Baa1 rating; and (2) a further
improvement of the domestic macroeconomic scenario, as well as of
public finances, as captured by an upward move of Italy's
sovereign rating.
Any deterioration in Italy's creditworthiness as captured by a downward
movement in the Italian government's rating would likely result
in a corresponding adjustment of SNAM's rating. Negative
rating pressure could also develop in case of (1) adverse regulatory developments
affecting SNAM's business risk profile; (2) evidence of political
interference and/or discriminatory fiscal measures; (3) the implementation
of a more risky strategy and increased investments commitment; or
(4) structural deterioration of SNAM credit metrics below Moody's
rating guidance (FFO/interest coverage of between 3.0x-4.0x,
FFO/net debt of 10% to the low teens, RCF/net debt of 6%
to the high single digits and net debt/fixed assets not higher than 70%).
- TERNA:
Today's stabilisation of Terna's rating outlook reflects the
close linkages between Terna's credit quality and that of the Italian
government. Despite Terna's currently solid standalone financial
position, its rating continues to be constrained by that of Italy
as a result of country risks associated with being based in Italy.
In accordance with Moody's previously published guidance, infrastructure
and utility companies would not normally be expected to have a rating
more than two notches higher than the government of the country in which
the majority of their business is located. Moody's considers a
one-notch, rather than two-notch, differential
between Terna and Italy's rating to be appropriate given the group's
negligible amount of non-domestic revenue and its exposure to the
potential consequences of government's limited financial flexibility.
Terna's Baa1 issuer rating also takes into account (1) the company's
low business risk profile associated with its electricity transmission
activities under the well-established Italian regulatory framework;
(2) its strategic position as owner and operator of Italy's electricity
transmission assets, with focus on regulated activities and pivotal
role in delivering the country's energy plan; (3) Terna's comfortable
liquidity profile; (4) the company's diversified debt structure
and sustainable debt maturity profile over the medium term; and (5)
the company's sizeable investment plan and its high dividend policy vis-à-vis
other European peers.
Given the linkages between Terna's rating and that of the Italian government,
an upward movement in the sovereign rating would be necessary before Moody's
considered a similar move in Terna's ratings. Any deterioration
in Italy's creditworthiness, as captured by a downward movement
in the Italian government's rating, would likely result in
a corresponding adjustment of Terna's rating. Negative rating
pressure could also develop in case of (1) adverse regulatory developments
negatively affecting Terna's business risk profile; (2) evidence
of political interference and/or discriminatory fiscal measures;
(3) the implementation of a more risky strategy and/or investments;
and/or (4) a material deterioration of Terna's liquidity profile or of
its credit metrics below Moody's guidance (FFO/interest coverage
in the 3.0x-4.0x range; an FFO/net debt ratio
sustainably in the low double-digits to mid-teens;
and an RCF/net debt ratio of between 7% and 10%).
OVERVIEW OF UNAFFECTED ISSUERS
A2A:
The Baa3 issuer and senior unsecured ratings and their negative outlook
remain unchanged following Moody's decision to change the outlook
on Italy's Baa2 government bond rating to stable from negative.
Although Moody's believes that A2A has made progress in strengthening
its liquidity profile and reducing its leverage in the last few months,
the outlook on its ratings reflects the risk that the challenging conditions
currently characterising the electricity markets in Italy could prevent
the company from maintaining a financial profile commensurate with the
current rating. Achieving financial metrics on a sustainable basis
to a level commensurate with the guidance (i.e., FFO/net
debt metrics comfortably positioned between the mid-teens to low
twenties in percentage terms) would be a precondition to stabilising the
current negative outlook on the company's rating.
- ENEL (AND ITS SPANISH SUBSIDIARY, ENDESA):
The Enel group's Baa2/P-2 senior unsecured ratings and their
negative outlook remain unchanged. The current ratings factor in
the progress the Italian-based group has made toward deleveraging,
but the negative outlook continues to reflect (1) a degree of execution
risk associated with the company's further deleveraging efforts;
(2) a financial profile for 2013 that is anticipated to be somewhat weak
for the financial guidelines for the current rating (i.e.,
RCF/net debt in the mid-teens and FFO/net debt of around 20%);
and (3) a degree of uncertainty still linked to the regulatory environment
in Spain.
A stabilisation of the outlook could occur if the company achieves a reduction
in debt by end-2014 and can maintain earnings such that it achieves
the guideline metrics noted above. This scenario would also assume
no further major regulatory or other operating shocks or renewed negative
macroeconomic deterioration in either Spain or Italy that could raise
the riskiness of the company's core operating environment or challenge
its financial profile further.
- EDISON:
The company's Baa3 rating with a stable outlook remains unchanged.
The rating continues to (1) reflect the positive benefits to the Italian
energy company of full ownership and control by the highly rated French
Electricite de France (EDF; Aa3 negative); and (2) assumes that
EDF will ensure that Edison will continue to improve its financial profile,
such that it can move broadly in line with that of its parent's target
profile of net debt/EBITDA of 2.0x-2.5x, which
for Edison should translate into FFO/net debt comfortably in the twenties
in percentage terms.
- HERA:
The Baa1 issuer and senior unsecured ratings and their negative outlook
remain unchanged. The outlook reflects Hera's weak,
albeit improving, credit metrics relative to its current Baa1 rating
and the risk that they could deteriorate to a level no longer consistent
with the company's current rating positioning. Preconditions
to consider stabilising the current negative outlook on the company's
rating would be financial metrics in line with Moody's guidance
of an FFO/net debt positioned at least in the upper teens in percentage
terms, and an RCF/net debt in the low teens, associated with
an improvement in the domestic macroeconomic environment.
Moody's will comment separately on the ratings of Acquedotto Pugliese
S.p.A. as the company's ratings incorporate some
uplift for support from its sub-sovereign owner (Region of Puglia).
PRINCIPAL METHODOLOGIES
The principal methodology used in rating Terna - Rete Elettrica
Nazionale S.p.A. and SNAM S.p.A.
was Regulated Electric and Gas Networks published in August 2009.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
The principal methodology used in rating Compagnia Valdostana delle Acque
S.p.A. was Unregulated Utilities and Power Companies
published in August 2009. Please see the Credit Policy page on
www.moodys.com for a copy of this methodology.
ACEA S.p.A.'s ratings were assigned by evaluating
factors that Moody's considers relevant to the credit profile of the issuer,
such as the company's (i) business risk and competitive position compared
with others within the industry; (ii) capital structure and financial
risk; (iii) projected performance over the near to intermediate term;
and (iv) management's track record and tolerance for risk. Moody's
compared these attributes against other issuers both within and outside
ACEA S.p.A.'s core industry and believes ACEA
S.p.A.'s ratings are comparable to those of
other issuers with similar credit risk.
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
Alessandro La Scalia
Vice President - Senior Analyst
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
Monica Merli
MD - Infrastructure Finance
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
Moody's announces impact on certain utility companies following Italian sovereign action
