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Rating Action:

Moody's changes Amprion's outlook to stable; affirms ratings

22 Jul 2022

Frankfurt am Main, July 22, 2022 -- Moody's Investors Service has today changed the outlook of Amprion GmbH (Amprion) to stable from negative. Concurrently, Moody's has affirmed Amprion's Baa1 long-term issuer and senior unsecured debt ratings as well as the company's Prime-2 short-term issuer and Commercial Paper ratings.

RATINGS RATIONALE

Today's rating action reflects Moody's expectation that Amprion's key credit metrics will likely remain within the rating agency's revised guidance for the existing Baa1 rating despite a significant investment programme, thanks to ongoing support from its shareholders.

In its 2021 annual report, Amprion forecasts investment needs of roughly EUR28.0 billion over the 2022-31 period. This amount represents yet another increase in planned investments, up 15% compared to the EUR24.3 billion projected over the 2021-30 period one year ago, and is broadly in line with the German federal energy regulator's (the Bundesnetzagentur or BNetzA) 2035 network development plan. Moody's understands that the majority of the increase in planned investments relates to higher costs of existing onshore transmission line projects, given stricter permitting and environmental standards; increased material costs or a change in routing; and the initial costs for three new 2,000 megawatt offshore connections. Higher capital expenditures in combination with comparably long asset lives under the German regulatory framework will weaken Amprion's financial profile by depressing the company's currently strong cash-flow based metrics, reflected in funds from operations (FFO) to net debt of some 16% in 2021, and increasing leverage.

Nevertheless, the rating affirmation and outlook change to stable reflect Moody's expectation that Amprion will maintain FFO (adjusted for regulatory timing differences) to net debt in the high single digits in percentage terms and net debt to fixed assets not exceeding 60%. The revised cashflow-based guidance takes into account the company's lowly-geared capital structure; the characteristics of the regulatory framework under which it operates, specifically the impact of elevated investment on credit metrics in the context of longer asset lives compared to most peers; Moody's expectation of full cost and investment recovery over time; and a demonstrated track record of shareholder support in the face of significant investment needs.

Notably, Amprion's target of maintaining its gearing in line with the regulatory assumption of 60% will be largely influenced by the measures taken by its owners, RWE AG (Baa2 stable) and a consortium of institutional investors. The company's owners have a track-record of supporting Amprion's financial profile, as evidenced by the two EUR400 million equity injections in June 2015 and December 2020. Moody's understands that the equity injections were sized to ensure that Amprion's gearing was aligned with the regulatory assumption in the reference (photo) year for the forthcoming regulatory period and expects that the company's shareholders will maintain a similar approach in future regulatory periods.

The ratings affirmation further reflects that Amprion's Baa1 rating continues to be supported by the very low business risk profile of its monopoly electricity transmission network operations in Germany, which operate under an established regulatory framework; and the company's strong operational performance and efficiency.

At the same time, the rating is constrained by the aforementioned substantial expansion in planned investments over the next decade, which will increase leverage from the current modest levels (net debt to fixed assets was 32% at year-end 2021); and by an allowed equity return in Germany which is low compared with that for Western European peers in the current regulatory period and which will decline further from 2024, thus depressing operating cash flows. For the fourth period starting in 2024, the BNetzA in October 2021 confirmed allowed equity returns of 5.07% (nominal, pre-tax) compared to 6.91%, nominal, pre-tax, over the current, third regulatory period 2019-23. Amprion and other grid operators have filed appeals with the Higher Regional Court in Duesseldorf in December 2021.

While other regulatory parameters for the next period, including the results of efficiency benchmarking, are not expected to be determined by BNetzA before 2023, the stable outlook further incorporates Moody's expectation that Amprion will maintain its strong operational performance and efficiency, reflected in company-specific productivity at 100%.

LIQUIDITY

Amprion's liquidity profile is adequate. As of 31 December 2021, the company had EUR3.58 billion in available liquidity, mostly dedicated to financing renewable obligations, which are pass-through items for the company under the renewable energy law (Erneuerbare-Energien-Gesetz, or EEG). Given high energy prices, Moody's expects a significant positive EEG cash balance to continue. Should a shortfall occur, as was the case in 2020, Amprion, along with the other transmission system operators in Germany, will be entitled by law to recover it. Since 1 July 2022 EEG funds collected by Amprion are funded from the federal government budget, thus replacing the EEG surcharge in end-customer tariffs. Amprion's liquidity is further supported by a EUR1.5 billion committed syndicated revolving credit bank facility, available for grid operations, which currently matures in October 2025.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Given Amprion's significant investment programme and associated funding requirements, an upgrade is unlikely during the current regulatory period. However, an improvement of Amprion's financial profile with FFO/net debt at least in the low teens in percentage terms could exert upward pressure on the ratings. Any upgrade would also need to consider the extent of any evolution of the regulatory framework.

Conversely, the ratings could come under downward pressure if there was a deterioration in Amprion's business risk profile, e.g. arising from adverse changes to the regulatory framework or a significant increase of the execution risk associated with delivering its investment programme; or if key credit metrics declined sustainedly below Moody's expectations for the Baa1 rating.

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 grids of 380kV and 220kV in Germany, measuring around 11,000 kilometers in length and with 160 substations and transformer stations. The company reported revenue of EUR12.5 billion in FY2021.

The principal methodology used in these ratings was Regulated Electric and Gas Networks published in April 2022 and available at https://ratings.moodys.com/api/rmc-documents/386754. Alternatively, please see the Rating Methodologies page on https://ratings.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 on https://ratings.moodys.com/rating-definitions.

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 issuer/deal page for the respective issuer on https://ratings.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 https://ratings.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 https://ratings.moodys.com/documents/PBC_1288235.

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 https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Mark Remshardt
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
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 Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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