Fitch Ratings has affirmed
The Outlook is Stable. A full list of ratings is detailed below.
The rating affirmation reflects
The Stable Outlook reflects our expectations that
Key Rating Drivers
Increasing Capex Intensity: Higher-than-previously forecast capex and fairly weaker customer supply EBITDA increase leverage in the near term.
Financial Policy Allows for Growth: The restricted group's operations were highly free cash flow (FCF)-positive in FY22. However, we continue to assume significant growth capex with negligible EBITDA contribution, which should lead to negative FCF to FY26. We also assume the company to maintains net debt at 4.0x EBITDA (restricted group) on average, which is in line with our negative sensitivity for the rating. The ratings could come under pressure if
Negative Supply Offsets Improved Generation: Renewables power purchase agreements (PPAs) in FY22 with raised EBITDA levels reflected high weighted market prices. This is forecast to increase in FY23 as the average price across the year rises further before normalising in FY24. The Huntstown flexible generation business also benefits from the higher market prices. Set against this, the customer solutions segment saw negative margins due to high power market prices leading to higher costs.
Huntstown Benefits from Higher Utilisation: Huntstown saw significantly improved EBITDA of
Solid Business Mix: Fitch estimates the share of regulated and quasi-regulated EBITDA of the restricted group to increase significantly early in the forecast period before normalising towards FY26 at around 60%. This is due to the continuing negative impact of higher energy prices on the customer solutions division. The restricted group had on average 58% of regulated and quasi-regulated EBITDA in FY20 and FY21, when including dividends from project subsidiaries. In FY24 the regulated PPB contract will end but this will be offset by forecast higher dividends from the renewables segment, which remain outside of the restricted group.
Derivation Summary
Techem Verwaltungsgesellschaft 674 mbH (B/Stable) has an 8.0x FFO gross leverage sensitivity at its 'B' rating, indicating a higher debt capacity due to its high share of contracted revenue.
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
Power NI EBITDA margins of around 4% through to FY26 with unchanged regulation for residential supply in NI
Average load factor of 27% for owned wind farms leading to EBITDA margins of around 75% on average through FY22-FY27 with a similar EBITDA trend for the PPA portfolio
Huntstown EBITDA based on existing capacity agreements and management's guidance
Negative working capital as per management forecasts, primarily reflecting the reversal of working-capital timing benefits of FY22 including the payment on account of hedge debtors. Additional outflow during FY23 - FY27 on reversal of over-recovery in relation to the PPB contract in FY21-FY22
Capex of restricted group on average at around
Dividend pay-outs consistent with below 4.0x net debt / EBITDA target
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A decrease in restricted group's FFO net leverage to below 3.7x on a sustained basis
A structural decrease in business risk due to higher average contribution from the regulated/contracted generation business
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Large debt-funded expansion or deterioration in operating performance, resulting in restricted group's FFO net leverage above 4.5x and FFO interest cover below 3x on a sustained basis
Reduced share of regulated and quasi-regulated earnings to below 50% leading to a reassessment of maximum debt capacity
A material increase in the super senior revolving credit facility (RCF) could be negative for the senior secured rating
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Sound Liquidity: As at
Wind-capacity assets and debt financed through project-finance facilities are excluded from our debt calculation as the debt is held outside the restricted group on a non-recourse basis. The restricted group has no imminent short-term debt and its next maturing debt is its
Issuer Profile
Summary of Financial Adjustments
We deconsolidate non-recourse project-finance subsidiaries that sit outside the ring-fenced perimeter.
Sources of Information
The principal sources of information used in the analysis are described in the Applicable Criteria.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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