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I AGREE
15 Apr 2016
London, 15 April 2016 -- Moody's Investor Service has today upgraded to Baa1 from Baa2 the issuer
rating of Red Electrica de Espana, S.A.U. (REE).
Moody's has also upgraded to Baa1 from Baa2 the senior unsecured
guaranteed debt ratings of REE's affiliates. The outlook on all
ratings is stable.
The rating action follows REE's improved financial performance in
2015, and further progress on finalisation of the regulatory framework
for electricity transmission activities in Spain.
A full list of affected ratings is provided towards the end of this press
release.
RATINGS RATIONALE
Today's upgrade of REE's ratings to Baa1 reflects: (1) the group's
consistent and measured 2014-19 growth strategy, which emphasises
investment in Spain's regulated transmission network, but
also provides for investment in new activities outside its core domestic
regulated business; (2) the more settled regulatory framework in
Spain, which should support modest revenue growth over the plan
period; and (3) REE's financial policy, which balances
annual 7% growth in its dividend against a 3.5x net debt/EBITDA
average leverage profile, and which Moody's expects will underpin
a stable and solid financial position.
The Baa1 rating factors in that although the group's strategy provides
for sizeable investment in international and domestic energy storage assets,
REE's earnings will remain predominantly derived from its domestic
regulated electricity transmission business in Spain. Having invested
€903 million over 2014-15, the group's plan provides
for a further €2.2 billion to be invested in the domestic
network over the remaining four years of the plan period. Spain's
€4.6 billion National Infrastructure Plan 2015-20,
published in November 2015, provides visibility on REE's project
pipeline, notwithstanding that the outlook is for modest electricity
demand growth. The Baa1 rating factors in Moody's expectation
that future overseas investment will be pursued incrementally by REE,
through deals of similar scale and business and financial risk impact
to its recent acquisition of 50% of Transmisora Electrica del Norte
(TEN unrated) in Chile.
The rating upgrade to Baa1 also reflects a more settled regulatory framework
in Spain. Although certain aspects await finalisation, the
framework moved a step closer to completion with the publication in December
2015 of Ministerial Order IET 2659/2015, which set out, inter
alia, the investment, operational and maintenance benchmark
unit costs for transmission activities. The shift towards equilibrium
between costs and revenues for Spain's electricity system,
with a surplus of €550 million reported for 2014, and another
surplus estimated in 2015, also underscores the improved visibility
around Red Electrica's regulated revenues, in Moody's
view.
REE's rating takes account of its solid financial profile and its
financial policy which targets average net debt/EBITDA of 3.5x
over the plan period. In 2015 the group's EBITDA rose 5.3%
to €1,458 million; reported net financial debt declined
to €4.9 billion, from €5.4 billion in 2014
thanks to lower capital investment and reduced working capital.
REE's leverage metrics improved as a result, with funds from
operations (FFO)/net debt recovering to 21.5% in 2015 from
17.8% in 2014 (which reflected the ADIF investment late
in the year), and net debt/Fixed assets declining to below 60%.
The Baa1 reflects Moody's estimates that over 2016-17 REE
should be able to maintain FFO/net debt in the region of 20%,
and retained cash flow/net debt in double digits in percentage terms,
levels which are consistent with earlier guidance for an upgrade.
This factors in Moody's expectation that REE can improve its margins
over the plan period through sufficient efficiency initiatives to offset
the additional remuneration challenges implied by the recently published
unitary values.
The stable outlook reflects Moody's expectation that REE will continue
to pursue a measured strategy against a stabilizing regulatory backdrop.
We expect REE will continue to balance its asset and earnings growth objectives
with a stable business and financial risk profile, such that FFO/net
debt and RCF/net debt remain comfortably positioned in the mid to high
teens, and double digits in percentage terms respectively.
WHAT COULD MOVE THE RATING UP/DOWN
REE's rating is positioned one notch higher than that of the Government
of Spain, which is rated Baa2, with a stable outlook.
Given that the large majority of REE's earnings are generated in
Spain, we do not see the potential for REE's rating to be
positioned more than one notch higher than Spain's rating,
and therefore see no current scope for an upgrade.
REE's rating would come under negative pressure in the event that
its financial profile were to deteriorate below our current expectations
- as a result of either (1) a more aggressive management strategy
in terms of larger investments or shareholder distributions; or (2)
adverse regulatory developments -- as might be indicated by FFO/net
debt and RCF/net debt declining to low-mid teens and high single
digits respectively.
PRINCIPAL METHODOLOGY
The methodologies used in these ratings were Regulated Electric and Gas
Networks published in November 2014, and Government-Related
Issuers published in October 2014. Please see the Ratings Methodologies
page on www.moodys.com for a copy of these methodologies.
LIST OF AFFECTED RATINGS
Upgrades:
....Issuer: Red Electrica de Espana
Finance B.V.
....BACKED Senior Unsecured Medium-Term
Note Program, Upgraded to (P)Baa1 from (P)Baa2
....Issuer: Red Electrica de Espana,
S.A.U.
....LT Issuer Rating, Upgraded to Baa1
from Baa2
..Issuer: Red Electrica Financiaciones, S.A.U.
....BACKED Senior Unsecured Regular Bond/Debenture,
Upgraded to Baa1 from Baa2
....BACKED Senior Unsecured Medium-Term
Note Program, Upgraded to (P)Baa1 from (P)Baa2
Outlook Actions:
....Issuer: Red Electrica de Espana
Finance B.V.
...Outlook, Changed To Stable From Positive
....Issuer: Red Electrica de Espana,
S.A.U.
...Outlook, Changed To Stable From Positive
..Issuer: Red Electrica Financiaciones, S.A.U.
...Outlook, Changed To Stable From Positive
REE, based in Madrid, Spain, is the owner and operator
of the Spanish transmission grid and its interconnectors. In the
year ended 2015 the company had revenues of EUR1.9 billion.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 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.
These ratings were not initiated or not maintained at the request of the rated entities.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. On
this basis, these rated entities or their agents are considered
to be non-participating entities. These rated entities or
their agents generally do not provide Moody's with information for
the purposes of their ratings process.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Niel Bisset
Senior Vice President
Infrastructure Finance Group
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
Monica Merli
MD - Infrastructure Finance
Infrastructure Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
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 upgrades REE's ratings to Baa1; outlook stable
No Related Data.
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