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Global Credit Research - 13 Sep 2010
First time rating
Frankfurt am Main, September 13, 2010 -- Moody's Investors Service has today assigned a Ba3 corporate family
rating (CFR) and Ba3 probability-of-default rating (PDR)
to Abengoa S.A., a vertically integrated environment
and energy group whose activities span from biofuels, metal recycling
and plant engineering to utility type operation of solar energy plants,
electricity transmission networks and water treatment plants. Concurrently,
Moody's has assigned Ba3 ratings with a loss-given-default
(LGD) rating of LGD3, 46%, to the two senior outstanding
bonds of Abengoa. The outlook for the ratings is stable.
This is the first time that Moody's has assigned ratings to Abengoa.
"The Ba3 CFR for Abengoa reflects the combination of its well-established
industrial operations and a diversified portfolio of concessions in the
energy, water treatment and industrial services sectors,"
says Wolfgang Draack, a Senior Vice President in Moody's Corporate
Finance Group. Together, the two segments benefit from the
underlying growth in environmental applications, (renewable energies
, industrial recycling and electrical power transmission),
and the visibility that regulated returns generally provide. These
factors have allowed Abengoa to develop a track record of solid growth
and robust margins. Compared to these positive operating trends,
Moody's sees the relatively immature concession portfolio as a burden
to the group. While relatively diversified by industry and region,
a large part of the 50 units portfolio had not yet commenced operation
at FYE2009 and dividend distributions to Abengoa were marginal so far.
Over the past 10 years Abengoa achieved a 17% CAGR for sales and
24% in EBITDA. Abengoa's organic growth and heavy
investments in its concession portfolio have been funded by cash flow
and debt and, therefore, have resulted in high leverage,
even though almost half of gross debt comprises project finance with limited
recourse. Moody's believes that Abengoa's main operating
risks are centred around (i) regulation; (ii) completion of engineering
projects; (iii) overcapacities in biofuels; and (iv) the cyclicality
of the steel industry impacting the recycling segment. Moody's
notes that the current belt-tightening in several European countries
including Spain may lead them to make revisions to its renewable energy
policy, which may not only affect Abengoa's outlook for future
projects, but possibly also the economics of power plants already
in operation under long-term contracts. Revisions in Spain
have been agreed, though not yet ratified, which in effect
slightly reduce near term tariffs but also extend license periods as compensation
and limit room for future retroactive changes.
Abengoa's corporate activities (all operations that are not subject
to long-term contractual arrangements or financed by limited recourse
loans) are generally well positioned, with leading market shares
and barriers-to-entry in the form of technological advantages,
scale or regulation. "Given the breadth of the group's
operations, individual operating risks should remain manageable
for the group," says Mr. Draack.
Abengoa's portfolio of concessions at the end of FY 2009 comprised
50 projects with a total book value of around EUR3.6 billion of
fixed assets and EUR2.2 billion project financing (net of EUR700
million cash and short term investments held by the project companies).
In many cases, the contracts last well over 20 years and revenues
are based on regulated tariffs (e.g. solar), power
purchase agreements or inflation-adjusted tariffs according to
equipment availability (transmission). Given that 19 of these projects
are not yet under way, they currently dilute the group's return
on assets (RoA), although Moody's sees potential for substantial
EBITDA growth in the portfolio in the next few years. The rating
agency expects Abengoa to continue to require substantial capital investments
for existing and future projects, and also to retain some risk as
a result of completion, as well as leverage commitments during the
construction phase for limited-recourse project financings.
Dividend distributions from the projects to Abengoa should grow in the
next few years from a negligible level in 2009.
"The stable outlook for the ratings reflects Moody's expectation
that (i) Abengoa will sustain its sound market position across business
segments, with a resilient operating performance through the cycle;
and (ii) projects under concessions and disciplined capital spending will
boost the earnings contributions from this portfolio going forward,"
explains Mr. Draack. As a result, the rating agency
would expect Abengoa to continue reducing the reported gross debt/EBITDA
(including R&D expenses) ratio of its non-concession segments
to below 4.5x (5.2x as of 2009), and the net debt/EBITDA
ratio of the group overall including limited-recourse debt to below
6.0x (as adjusted by Moody's, 7.1x as of 2009).
The rating would be positively affected by a maturing of Abengoa's
concession portfolio, with a material increase in dividends distributed
or evidence that substantial stakes in the portfolio can be monetised,
with the proceeds used for debt reduction. For a rating upgrade
to be considered, Moody's would expect to see a sustained
improvement in the reported debt/EBITDA ratio of Abengoa's corporate
activities, trending towards 3.5x, and the net debt/EBITDA
ratio (as adjusted by Moody's) being reduced to below 5.5x
for the group overall.
Moody's would consider a rating downgrade if: (i) Abengoa's
earnings strength were to deteriorate as a result of poor project execution,
cost overruns or an unexpected change in the operating environment --
for example, the solar industry -- without a mitigating reduction
in the debt level; or (ii) if the current deleveraging was not pursued,
leading the reported debt/EBITDA ratio of the group's corporate
activities to remain above 4.5x after 2010, or to increase
beyond that level; or leading the net debt/EBITDA ratio (as adjusted
by Moody's) to remain above 6.0x for the group on a sustainable
basis. In such a case Moody's will take account of the quality
of investments, Abengoa's financial strategy and the state
of maturity of the concession portfolio.
For its LGD waterfall Moody's disregards the limited recourse debt,
because it is to be serviced from the cash flows of the projects and is
fully secured by the respective assets. In line with Moody's
LGD approach, the rating agency groups Abengoa's debt into
two classes of creditor protection: (i) senior bonds, syndicated
loans and the working capital facilities of Abengoa's operating
subsidiaries; and (ii) convertible bonds issued by the holding company
without guarantees. None of this debt is materially secured by
The convertible bonds issued by the holding company without upstream guarantees
constitute the second class of debt. This debt structure with a
strong preponderance of class 1 debt is reflected in the Ba3 (LGD 3,
46%) rating for the senior bonds, i.e. at the
same level as the CFR and PDR of the group, with respectively lower
LGD rates for the lower class of debt holding the convertible bonds.
Abengoa's ratings were assigned by evaluating factors we believe
are relevant to the credit profile of the issuer, such as i) the
business risk and competitive position of the company versus others within
its industry, ii) the capital structure and financial risk of the
company, iii) the projected performance of the company over the
near to intermediate term, and iv) management's track record
and tolerance for risk. These attributes were compared against
other issuers both within and outside of Abengoa's core industry
and Abengoa's ratings are believed to be comparable to those of
other issuers of similar credit risk.
Headquartered in Seville, Spain, Abengoa generated EUR2.8
billion revenues in the first half 2010.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service's information,
confidential and proprietary Moody's Analytics' information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
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Please see ratings tab on the issuer/entity page on Moodys.com
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Senior Vice President
Corporate Finance Group
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
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Moody's Deutschland GmbH
Moody's assigns Ba3 CFR to Abengoa (Spain); outlook stable
An der Welle 5
Frankfurt am Main 60322
No Related Data.
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