First-time rating
London, 15 July 2011 -- Moody's Investors Service has today assigned a provisional (P)A3
long-term issuer rating to Amprion GmbH ("Amprion"),
one of four electricity transmission network operators in Germany.
The outlook on the rating is stable.
RATINGS RATIONALE
Although fully owned by RWE AG (rated A2, under review for downgrade),
Amprion has been acting as an "Independent Transmission Operator"
since 2009. RWE has recently signed an agreement with a consortium
of institutional investors, with regards to a sale of 74.9%
of the company's share capital. The provisional (P)A3 rating,
which incorporates the new ownership structure, reflects the requirement
of approval by the supervisory board of RWE AG as well as by anti-trust
authorities for the transaction's final settlement. Moody's
understand that completion of the transaction is expected shortly within
third quarter of 2011.
Moody's issues provisional rating in advance of the final settlement of
the transaction and this rating reflects Moody's preliminary credit opinion
regarding the transaction. Upon a conclusive review of the transaction
and associated documentation, Moody's will endeavour to assign a
definitive rating to Amprion. A definitive rating may differ from
a provisional rating.
"The provisional (P)A3 rating assigned to Amprion reflects a combination
of: (i) a relatively low business risk profile underpinned by the
company's monopolistic transmission network activities; (ii)
a thoroughly defined, but relatively new and untested, incentive-based
regulatory regime, which is undergoing modifications in terms of
the application of relatively complex principles; (iii) the company's
sizeable capital expenditure (capex) programme, which will require
additional funding over the medium to long term; and (iv) expected
weakening of the company's currently strong financial profile as
its leverage gradually increases from initially moderate levels,"
says Richard Miratsky, a Moody's Vice President-Senior
Analyst and lead analyst for Amprion.
Amprion operates under a relatively new and untested incentive-based
regulatory regime in Germany. Moody's views the German regulatory
framework as less transparent and predictable than more established regimes,
such as the UK framework, and therefore slightly riskier.
However, the rating agency has also considered that the Federal
Network Agency (Bundesnetzagentur), the German regulatory body for
energy and infrastructure networks, has demonstrated the willingness
to address a number of potential risk factors for the transmission operators
since the introduction of the incentive-based regime in 2009.
With respect to their ability to recover costs and investments,
the tariff formula allows transmission companies to cover efficient operating
and capital costs, and to earn a fair return. However,
the recognition of investments into the regulated asset base (RAB) is
subject to a two-year time lag.
The risk of volatility of transmission revenues is largely offset for
German network operators through an adjustment mechanism. However,
Moody's notes that higher volatility and increased working capital
needs could result from the current arrangements in place for the legal
off-take requirement with regard to electricity produced by renewable
energy sources and combined heat and power plants.
Moody's expects Amprion to initially exhibit a healthy financial
profile, with overall gearing remaining relatively moderate,
with a funds from operations (FFO)/net debt ratio above 20% and
an FFO/interest coverage well above 5.0x during the first regulatory
period. However, given Amprion's sizeable capex programme,
Moody's considers it likely that the company's debt coverage
will weaken as its leverage increases, reflected by an expectation
of FFO/net debt ratio declining to the mid-teens in percentage
terms and FFO/interest coverage ratio of between 3.5 and 4.0x
in the forthcoming second regulatory period until 2018.
Over the next decade, Amprion plans a significant investment programme,
which is estimated to amount to around EUR3.3 billion. Although
not directly exposed to off-shore wind connection, the majority
of the planned capex is targeted at the expansion and enforcement of on-shore,
extra-high-voltage connections. In order to match
increased generation in northern Germany with the main consumption centres
in the country's central and southern regions, the main strategic
goal of the planned investments focuses on strengthening of the intra-German
transmission capacity. Such ambitious capex will not only weaken
Amprion's current healthy financial profile, but also test
its technical and managerial capabilities and pose a challenging execution
risk.
For Amprion to maintain the assigned rating level, Moody's
would expect the company to achieve an FFO/interest coverage ratio of
at least 3.5x, an FFO/net debt ratio in the mid teens and
retained cash flow (RCF)/net debt in the low teens in percentage terms.
Although supported by solid cash flow generation from regulated network
activities, Amprion's short-term liquidity will depend
on successful finalisation of the currently negotiated bank financing.
The EUR800 million medium-term credit facility, recently
agreed with a consortium of main German banks, should provide Amprion
with healthy headroom for covering working capital needs from legal off-take
requirement with regard to electricity produced by renewable energy sources
and provide medium-term coverage for planned investments.
The stable outlook on the assigned provisional (P)A3 issuer rating is
based on Moody's view that Amprion's medium-term financial
profile will reflect a gradual increase in leverage as the company's
capital investment programme gains pace, but nevertheless remain
within the minimum financial parameters mentioned above. The stable
outlook also reflects Moody's view that, given the current
benign market conditions, Amprion will successfully arrange necessary
external financing, thereby avoiding any pressure on its liquidity.
Given Amprion's significant investment programme and associated
funding requirements, Moody's sees limited potential for a
rating upgrade over the medium term. However, a sustainable
improvement in cash-flow-based debt metrics, such
as FFO/net debt consistently at or above 20% and RCF/net debt in
the mid teens, could exert upward pressure on the ratings,
if this were accompanied by a positive track record of regulatory developments.
Conversely, the rating could come under downward pressure if Amprion's
FFO/interest coverage ratio were to fall below 3.5x and its FFO/net
debt ratio were to decline below the mid teens in percentage terms.
This could be caused by, for example, operational underperformance,
higher-than-expected dividend payments or material increases
in capital expenditure, without offsetting balance-sheet
measures.
The principal methodology used in this rating 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.
One of four electricity transmission network operators in Germany,
Amprion operates the longest extra-high-voltage grid in
the country, with voltage levels of 380 kV and 220 kV and a length
of 11,000 km, which covers a territory of more than 73,100
square km from Lower Saxony down to the Alps. As at December 2010,
Amprion reported revenues of around EUR6.5 billion under German
GAAP.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not an auditor
and cannot in every instance independently verify or validate information
received in the rating process.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the credit rating action. Please see the
ratings disclosure page on our website www.moodys.com for
further information.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
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.
Prague
Richard Miratsky
Vice President - Senior Analyst
Infrastructure Finance
Moody's Investors Service Limited Czech Branch
Telephone: +420-22-422-2929
London
Monica Merli
MD - Infrastructure Finance
Infrastructure Finance
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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 assigns provisional (P)A3 issuer rating to Amprion; stable outlook (Germany)
