Frankfurt am Main, July 02, 2020 -- Moody's Investors Service has today downgraded Amprion GmbH's (Amprion)
long-term issuer rating to Baa1 from A3. Concurrently,
Moody's has revised Amprion's outlook to stable from negative.
RATINGS RATIONALE
Today's rating action reflects Moody's expectation that Amprion's
key credit metrics will fall below levels consistent with an A3 rating
as a result of (1) Amprion's steadily increasing capital investment
requirements to support the energy transition in Germany and (2) lower
allowed equity returns for the current regulatory period. Moody's
expects that Amprion's ratio of funds from operations (FFO) to net
debt will fall below 15% over the 2020-21 period.
Similarly, Moody's forecasts retained cash flow (RCF) to net
debt to fall below 10% in 2020 and 2021.
In their fiscal year (FY) 2019 annual report published in June 2020[1],
Amprion indicated that it projects investment needs of roughly €15.2
billion over the 2020-29 period. This amount represents
a material 63% increase in planned investments compared to the
€9.3 billion projected over the 2019-28 period one
year ago, and is broadly in line with the German federal energy
regulator's (the Bundesnetzagentur or BNetzA) 2030 network development
plan.
Moody's understands that the majority of the increase in planned investments
relate to (1) a higher proportion of the transmission lines for Amprion's
largest projects being undergrounded and (2) the inclusion of costs for
two 900 megawatt offshore connections. Amprion's capex is expected
to approach 20% of net property, plant & equipment (PP&E)
over the coming years with Moody's projecting that investments will
spike in 2022 and 2023 from current levels today.
The Baa1 rating continues to reflect the very low business risk profile
of Amprion's monopoly electricity transmission network operations
in Germany, which the company operates under an established regulatory
framework. Amprion has good cash-flow visibility until the
end of the current regulatory period ending 2023 following confirmation
by the BNetzA in July 2019 on allowed equity returns (6.91%,
nominal, pre-tax, for the current, third regulatory
period 2019-23 compared to 9.05%, nominal,
pre-tax, over the second regulatory period 2014-18).
Amprion's rating also reflects its strong operational performance
and efficiency, with company-specific productivity at 100%.
Amprion continues to be supported by its owners, RWE AG (Baa3 positive)
and a consortium of institutional investors, through periodic equity
injections.
LIQUIDITY
Amprion's liquidity profile is good. As of 30 June 2020,
the company had €1.38 billion in available liquidity,
a substantial portion of which is dedicated to financing renewable obligations
under the renewable energy law (Erneuerbare-Energien-Gesetz,
or EEG). The available EEG-specific facilities total approximately
€841 million with a further €535 million liquidity availability
for grid operations.
While EEG obligations are a pass-through, Amprion will have
outsized EEG funding obligations in 2020 owing in part to much lower power
prices attributable to milder winter weather and to the drop in demand
from the coronavirus. Moody's expects Amprion to draw on
both existing and recently raised loan facilities associated with these
funding obligations, which will have some negative impact on financial
metrics for 2020, but reverse itself in 2021. By law,
Amprion, along with the other transmission system operators in Germany,
recover EEG costs under the EEG surcharge determined in October of each
year.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectation that Amprion will
continue to meet the ratio guidance for the existing rating, with
key credit metrics including FFO/net debt and RCF/net debt remaining around
the low-teens and high single digits (both in percentage terms),
respectively. The stable outlook also reflects Moody's expectation
that Amprion will maintain its strong operational efficiency.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Given Amprion's significant investment programme and associated funding
requirements, an upgrade is unlikely during the current regulatory
period. However, a stabilization of Amprion's financial
profile with FFO/net debt to levels above 15% and RCF/net debt
to levels above the low-teens (in percentage terms) on a consistent
basis could exert upward pressure on the rating. Any upgrade would
also need to consider the extent of any evolution of the regulatory framework.
Conversely, the rating could be downgraded if (1) there was a deterioration
in Amprion's business risk profile, e.g. arising from
adverse changes to the regulatory framework or greater execution risk
associated with delivering its capex programme, resulting from changes
in project composition; or (2) key credit metrics declined below
our expectations for the Baa1 rating, with FFO/net debt falling
to levels below the low teens and RCF/net debt falling to levels below
the high single-digits (both in percentage terms), respectively.
This could be driven by operational underperformance, higher-than-expected
dividend payments, or the lack of offsetting balance sheet measures
in the wake of the substantial investment programme.
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 €14.3 billion in FY2019.
The principal methodology used in this rating 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
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same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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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
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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 rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
This rating is 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
REFERENCES/CITATIONS
[1] Company Annual Report 24-Jun-2020
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.
Charles Berckmann
Asst Vice President - Analyst
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
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