Fitch Affirms Iberdrola S.A. at 'BBB+', Stable Outlook

martes 25 de marzo de 2014 12:56 GYT

(The following statement was released by the rating agency) BARCELONA/LONDON, March 25 (Fitch) Fitch Ratings has affirmed Iberdrola S.A.'s Long-term Issuer Default Rating (IDR) and senior unsecured rating at 'BBB+' and removed them from Rating Watch Negative (RWN), where they were placed on 16 July 2013. The Outlook is Stable. A full list of rating actions is below. The rating actions follow the further disclosure of regulatory impacts for Iberdrola's Spanish business and the delivery of the business plan for 2014-2016. The Stable Outlook reflects our view that Iberdrola's rebased earnings with a high proportion of regulated and quasi-regulated activities will allow credit metrics to remain at a level commensurate with a 'BBB+' rating. KEY RATING DRIVERS Rebased Spanish Business The recent rounds of regulatory measures in Spain, some of which are yet to be formally completed, have placed pressure on Iberdrola's EBITDA through lower returns on electricity distribution and renewable assets, lower capacity payments and social bond responsibility. We believe that the measures largely remove the structural mismatch in the power market and thus reduce regulatory risk. There is a remaining element of uncertainty since not all measures have yet been ratified and there may be legal challenges raised. However, we consider the key factors are now known. With the current regulation and proposals, Iberdrola's EBITDA is likely to be low in 2014, with a possible slow increase afterwards, mainly from the UK, US and Mexican organic growth. Tariff Deficit Turning Point Iberdrola still has EUR1.6bn of tariff deficit (TD) receivables (EUR359m already collected in energy taxes in 2014) at FY13 mainly generated in 2013. The right to recoup this amount is recognised by law, although a final resolution to monetise this amount is not yet settled. Fitch has not included these proceeds within its rating case. A new mechanism was introduced in January 2014 to eliminate revenue and cost mismatch in the sector and limit new TD generation. If a new cost measure is introduced creating a TD, it will be limited to a maximum of 2% of the total system revenues (5% on an accumulated basis) and unlike previously, financing will be spread amongst all market participants. Iberdrola's share in any potential TD exposure will thus drop to less than 15% or EUR60m (EUR150m on an accumulated basis), compared with the current 35%. Weak Market Dynamics Iberdrola is geographically diversified and integrated along the electricity supply chain. Its generation business has faced on-going market pressures. For example, Iberdrola's generation EBITDA was impacted in 2013 by low spark spreads in the UK, and in Spain by new taxes on generation and renewable regulation reform, low power prices and overcapacity. The Brazilian business has been impacted by FX movements, drought and the ordinary tariff review. Overall, moderate GDP growth in the medium and long term is expected to support only slow growth in projected earnings. Defensive Business Plan (2014-2016) The new strategic plan assumes prudent investments, the completion of the EUR2bn divestment plan and additional disposals for an amount of EUR500m, which would be positive for Iberdrola's credit profile. The majority of investments will be in regulated/quasi regulated assets with pre-determined returns. Sufficient Financial Headroom Fitch forecasts reduced cash flow generation, while credit metrics should stay within rating guidelines in 2014-2016. We expect FFO adjusted net leverage at around 4.3x to 2017 and FFO interest coverage above 4.0x. Scottish Power Aligned The IDRs of Scottish Power Ltd (SPL) and Scottish Power UK plc (SPUK) are currently aligned with Iberdrola's IDRs based on Fitch's 'Parent and Subsidiary Rating Linkage' methodology as Fitch assesses the operational, strategic and legal links between the two companies to be strong. On a standalone basis, SPUK and SPL's credit profiles are enhanced by the stability of cash flow from its regulated electricity distribution and transmission businesses and ownership in renewable assets which operate under the renewables obligation. At the same time, they have been adversely affected by poor spark spreads which have affected earnings from UK gas plant. Consolidated View The rating case does not assume any significant changes to the capital structure or to where debt is raised in the group. Any material debt issuance at operating companies could lead to a consideration of the subordination of debt at the holding company. RATING SENSITIVITIES Positive: Future developments that could lead to positive rating action include: - Outperformance on our expectations with capital structure targets supporting FFO adjusted net leverage substantially below 3.5x and FFO interest coverage above 5.0x on a sustained basis. Negative: Future developments that could lead to negative rating action include: - Underperformance on our expectations with an increase of FFO adjusted net leverage up to and above 4.5x and FFO interest coverage below 4.0x on a sustained basis. - Deterioration of the operating environment or further government or regulatory measures in the key areas of operation substantially reducing cash flows. LIQUIDITY AND DEBT STRUCTURE As of 31 December 2013, Iberdrola had cash and cash equivalents of EUR1.7bn plus available committed credit facilities of EUR9.1bn, which was sufficient to meet debt maturities over the next 24 months with neutral free cash flow projected. FULL LIST OF RATING ACTIONS Iberdrola, S.A. Long-term Issuer Default Rating (IDR) affirmed at 'BBB+', Stable Outlook, removed from RWN Short-term IDR affirmed at 'F2', removed from RWN Senior unsecured affirmed at 'BBB+', removed from RWN National senior unsecured rating affirmed at 'AAA(mex)', removed from RWN Iberdrola International BV Senior unsecured rating affirmed at 'BBB+', removed from RWN Commercial Paper rating affirmed at 'F2', removed from RWN Subordinated notes rating affirmed at 'BBB-', removed from RWN Iberdrola Finanzas, S.A.U. Senior unsecured rating affirmed at 'BBB+', removed from RWN National senior unsecured rating affirmed at 'AAA(mex)', removed from RWN Iberdrola Finance Ireland Limited Senior unsecured affirmed at 'BBB+', removed from RWN Scottish Power Limited (SPL) Long-term IDR affirmed at 'BBB+', Stable Outlook, removed from RWN Short-term IDR affirmed at 'F2', removed from RWN Senior unsecured rating affirmed at 'BBB+', removed from RWN Scottish Power UK (SPUK) Long-term IDR affirmed at 'BBB+', Stable Outlook, removed from RWN Short- term IDR affirmed at 'F2', removed from RWN Senior unsecured rating affirmed at 'A-', removed from RWN Contact: Principal Analyst Amee Shokur Director +44 20 3530 1617 Supervisory Analyst Pilar Auguets Director +34 93 467 87 47 Fitch Ratings Espana, S.A.U. Paseo de Gracia, 85. 7th floor 08008 Barcelona Committee Chairperson Josef Pospisil Senior Director +44 20 3530 1287 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Applicable criteria, 'Corporate Rating Methodology', dated 05 August 2013, is available at Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. 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