Paris, July 28, 2021 -- Moody's Investors Service ("Moody's") has today
changed the outlook of Amprion GmbH (Amprion) to negative from stable.
Concurrently, Moody's has affirmed Amprion's Baa1 long-term
issuer rating , Prime-2 short-term issuer rating,
and Prime-2 commercial paper.
RATINGS RATIONALE
OUTLOOK CHANGE TO NEGATIVE
The outlook change to negative from stable reflects Moody's expectation
that Amprion's key credit metrics could fall below the rating agency's
guidance for the existing Baa1 rating. Specifically, Moody's
projects that Amprion's ratio of funds from operations (FFO) to
net debt could decline to levels below the low teens in percentage terms
as a result of its large and increasing capital expenditure over the next
ten years to accompany Germany's decarbonization efforts.
This is an environmental consideration under Moody's general principles
for assessing environmental, social and governance (ESG) risks.
Amprion's ten-year investment plan has increased to EUR24
billion over 2021-2030 [1], nearly a 60% increase
from its previous plan of EUR15.2 billion over 2020-29 which
was itself more than 60% larger than its previous plan of EUR9.3
billion over 2019-28. Most of the increase between the 2020
plan and the 2019 plan relates to the additional high-voltage direct
current corridor (Korridor B) and two further offshore connections.
This increase in planned investments takes place in a context of decreasing
allowed equity returns, which were lowered by over 200 basis points
on most of Amprion's assets at the start of the current regulatory
period on 1 January 2019 (to 6.91% from 9.05%,
nominal pre-tax). The BNetzA, the German energy regulator,
has proposed a further reduction in the allowed equity return for the
next regulatory period starting in 2024 to a minimum of 4.59%
nominal, pre-tax [2].
To-date, Amprion has maintained a strong financial profile,
reflected in FFO/net debt of 29.2% and net debt/fixed assets
of 48.5%, both at end December 2020, despite
the material growth investments undertaken in recent years and the temporary
financing of renewable obligations (EEG) during the year 2020 due to the
coronavirus pandemic. Excluding the EEG financing, which
was fully paid back in January 2021, FFO/net debt and net debt/fixed
assets would have been 63.6% and 22.3% in
2020, respectively.
The extent of the potential weakening in Amprion's financial profile
from its planned step-up in capital expenditure, at a time
of tighter regulatory allowances, will be influenced in part by
the measures taken by its owners to support credit quality. Amprion's
owners have a track-record of supporting its financial profile
as evidenced by the two EUR400 million equity injections in 2015 and 2020.
RATINGS AFFIRMATION
The ratings affirmation reflects that Amprion's Baa1 rating continues
to be supported by (1) the very low business risk profile of its monopoly
electricity transmission network operations in Germany, which operates
under an established regulatory framework, (2) its strong operational
performance and efficiency; and (3) the aforementioned periodic equity
injections from its owners, which support its financial profile.
The rating is constrained by (1) the lower allowed equity return in this
current regulatory period through 2023, depressing operating cash
flows, and (2) substantial expansion in planned investments over
the next decade, which will increase leverage from the current modest
levels.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the negative outlook, Moody's currently sees little
potential for upward pressure on the ratings.
The outlook could be stabilized if the company were to take sufficient
mitigating measures, in particular balance sheet measures,
such that (1) Amprion was expected to maintain a financial profile commensurate
with Moody's guidance for the Baa1 rating, which includes
FFO/net debt at least in the low teens in percentage terms; or (2)
FFO/net debt were to be not materially below the low teens in percentage
terms and net debt/fixed assets remained low.
Downward rating pressure would arise if (1) FFO/net debt fell sustainably
below the low teens in percentage terms and was not mitigated by a material
equity cushion under its net debt/fixed assets ratio; or (2) there
was a deterioration in Amprion's business risk profile, for
example arising from adverse changes to the regulatory framework or greater
execution risk associated with delivering its investment programme,
resulting from changes in project composition.
Amprion is one of the four German electricity transmission network companies,
covering a balancing zone that stretches from Lower Saxony to the Alps.
Amprion operates one of the longest extra-high voltage grid of
280kV and 220kV in Germany, measuring around 11,000 kilometers
in length and with 160 substations and transformer stations. The
company reported revenues of EUR15.5 billion in 2020.
The principal methodology used in these ratings was Regulated Electric
and Gas Networks published in March 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1059225.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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.
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 www.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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
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 www.moodys.com.
REFERENCES/CITATIONS
[1] Company's annual report, June 2021
[2] Draft decision for the allowed equity return in the fourth regulatory
period for German electricity and gas networks, BNetzA 14 July 2021
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.
Camille Zwisler
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
Paul Marty
Senior Vice President/Manager
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
