DBRS Ratings GmbH (DBRS Morningstar) assigned a provisional Issuer Rating of BBB (high) to Corporación Acciona Energías Renovables, S.A. (CAER or the Company) with a Stable trend.
KEY RATING CONSIDERATIONS
CAER is a pure-play leader in the renewable energy sector with a fully integrated business model and high diversification across geographies and technologies, which include onshore wind, solar photovoltaic (PV), hydraulic, concentrating solar power (CSP), biomass, and storage. CAER is a spin-off of Acciona, S.A. (Acciona or the Group), which – following CAER’s admission to trading on Spanish stock exchanges on 01 July 2021 and the exercise in full of the green shoe allotments by 15 July 2021 – retains a 82.75% stake in the Company. CAER formerly represented the fully-owned Energy Division of Acciona and accounted for approximately two-thirds of the Group’s EBITDA. DBRS Morningstar currently rates Acciona one notch lower than CAER at BBB with an Under Review with Developing Implications status, which will be resolved once there is more clarity regarding the Group’s financing strategy and leverage target following CAER’s spin-off.
CAER´s business risk profile is supported by its stable cash flows from regulated generation assets in Spain and long-term contracts for its international generation assets, each accounting for approximately 40-45% of the Company’s EBITDA. The remaining 10-20% of the Company’s EBITDA is uncontracted/non-regulated, half of which is covered by hedges and the other half is exposed to merchant power prices. The regulatory regime in Spain has been stable since 2014, providing a reasonable return on capital investment and floor-price protection against the Spanish wholesale power prices volatility. The current six-year regulatory period runs from 2020 to 2025 and, under the Royal Decree Law 17/2019 of 22 November 2019, CAER´s regulated rate of return for renewable assets in Spain was updated to 7.09% through 2025. Under the same law, CAER’s renewable assets in Spain with premium remuneration at the time of the 2013 cutback are allowed to maintain the previous regulated rate of return of 7.398% until 2031, as long as any legal or arbitration proceedings against the regulations are halted. DBRS Morningstar considers the current Spanish regulatory regime to provide strong visibility of earnings and cash flow generation for CAER´s renewable assets in Spain. In addition, most of CAER’s international generation assets benefit from long-term contracts with an average remaining life of about 14 years and solid credit quality counterparties.
CAER’s industry is capital intensive and the Company needs to make significant investments to develop, construct, and subsequently operate its projects. Since 2013, CAER primarily funded its projects through financing provided by Group companies (in particular, by Acciona Financiación Filiales (AFF), the Group’s main financing vehicle), project finance arrangements and, to a lesser extent, debentures and other negotiable securities issued at the project level. CAER expects that as a publicly listed company it will have access to a lower cost of capital - both in terms of debt and equity - to fund its pipeline independently from its parent company Acciona. CAER has an aggressive expansion plan to increase its total installed capacity from 10.7 gigawatts (GW) in 2020 to 20.0 GW in 2025. This expansion plan requires substantial capital expenditures and external funding over the next few years and entails a certain degree of project development risk.
In March 2021, as a preliminary step to CAER’s initial public offering, EUR 1,859 million of non-current financial liabilities payable to group companies and associates - held by CAER with AFF - was capitalised and registered as retained earnings (intragroup capitalisation). In May 2021, in order to maintain its financial independence and to repay the outstanding debt with AFF, among others, Acciona Energía Financiación Filiales (AEFF, CAER’s main financing vehicle) entered into a EUR 2.5 billion syndicated debt facility which was used upon the IPO to repay in full the outstanding financial liabilities with AFF. In July 2021, in order to fund its pipeline of projects, CAER launched – through AEFF – an up to EUR 3.0 billion euro medium-term note programme and an up to EUR 2.0 billion euro commercial paper programme, both guaranteed by CAER (and having terms and conditions mirroring the ones of the programs already issued by the parent company Acciona through AFF). DBRS Morningstar considers CAER to maintain a solid liquidity position, with cash and cash equivalents of EUR 363.6 million as of 31 March 2021.
Under its base case scenario, DBRS Morningstar has looked at CAER’s key credit metrics at their weak point in 2023-2024, when net debt materially increases on the back of the Company’s expansion plan and associated capital expenditure requirements. DBRS Morningstar expects that, although CAER’s credit metrics will weaken in the short to medium term, these will remain supportive of the assigned BBB (high) issuer rating and Stable trend across the forecast horizon and will improve over the long term. DBRS Morningstar also notes that CAER has a flexible dividend policy to further preserve its liquidity.
Given CAER’s current capital expenditure plan and associated project development risk, as well as its financing strategy, a positive rating action in the medium term is considered to be very unlikely. On the other side, a negative rating action could occur as consequence of: (1) a change in business mix which materially decreases the EBITDA contribution from regulated assets, (2) significant project delays and cost overruns associated with CAER’s aggressive expansion plan, (3) a material increase in its exposure to commodity risk, or (4) a decline in credit metrics to below DBRS Morningstar’s required levels, for example with a cash flow-to-net debt significantly below 20.0% and net debt-to-capital significantly above 50.0% on a sustained basis and without the implementation of financial remedies.
CAER’s issuer rating is supported by the Company’s: (1) stable cash flows from regulated generation assets in Spain, (2) long-term contracts for its international generation assets, (3) good geographic diversification, (4) solid credit metrics, strong liquidity, and good capital management policy, and (5) strong operational expertise and a good track record in the development of power projects. CAER´s issuer rating is constrained by the Company’s: (1) capital expenditure intensity and project development risk, (2) exposure of non-regulated generation to price volatility in the long-term, (3) operational risk, (4) currency and interest risk, and (5) intense competition in non-regulated operations. The Stable trend incorporates DBRS’s Morningstar’s view that - notwithstanding the expected large capex requirements - CAER´s credit metrics will remain supportive of a BBB (high) issuer rating.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
All figures are in euros unless otherwise noted.
The principal methodologies are the Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (27 October 2020), https://www.dbrsmorningstar.com/research/368939/, Rating Companies in the Independent Power Producer Industry (10 May 2021), https://www.dbrsmorningstar.com/research/378166/, and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (31 May 2021), https://www.dbrsmorningstar.com/research/379424/, which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/.
The primary sources of information used for this rating include annual reports and financial statements, interim financial statements, quarterly reports and financial statements, interim management statements, management projections and budgets, and external correspondence. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.
DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.
The sensitivity analysis of the relevant key rating assumptions can be found at: INSERT LINK TO DOCUMENT
This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Giuseppe Fresta, Vice President
Rating Committee Chair: Andrew Lin, Managing Director
Initial Rating Date: 26 August 2021
Last Rating Date: Not applicable as there is no last rating date.
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Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (27 October 2020) https://www.dbrsmorningstar.com/research/368939/
Rating Companies in the Independent Power Producer Industry (10 May 2021) https://www.dbrsmorningstar.com/research/378166/
DBRS Morningstar Criteria: Guarantees and Other Forms of Support (31 May 2021) https://www.dbrsmorningstar.com/research/379424/
DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021)
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.