The latest information on the rating, including rating reports and related methodologies, are available on this LINK.

Rating action

Scope Ratings affirms its BBB/Stable corporate issuer rating on Akershus Energi AS, as well as the S-2 short-term rating and BBB senior unsecured ratings.

Rating rationale

Akershus Energi’s issuer rating is positively affected by its conservative financial risk profile. The company’s financial risk profile improved during 2019 and could actually be considered better than the issuer rating indicates in terms of the recent year’s performance. Scope continues to highlight Akershus Energi’s positive free operating cash flow, indicating its ability to fund investments with internally generated cash flow over the cycle. However, Scope’s assessment of the company’s financial risk profile also takes into account a much higher expansionary investment plan in the short-to medium term, which is likely to return the capital structure to less conservative levels. Scope’s revised projections no longer anticipate that expansionary investment levels will be equally distributed per year over a longer time period, but rather intensified and concentrated on 2020 and 2021. As announced by the company in January 2020, a new management team, new business segments and more employees will fuel this growth. Moreover, Scope applies lower power market prices in 2020 and 2021, which also contributes to a deterioration in credit metrics from 2019 levels.

Scope’s overall business risk assessment of Akershus Energi has not changed. The company’s business risk profile continues to be viewed as slightly weaker than its financial risk profile. Limiting factors for Akershus Energi’s business risk profile, in addition to its industry risk and price exposure for unhedged production output, include its modest segmentation and limited water reservoir capacity. However, its low-cost hydropower assets, which have a strong position in the merit order system, and its above-average group profitability margins (over 60% in recent years) are key strengths.

In terms of liquidity, Akershus Energi is well covered, helped by a limited need for debt refinancing in the near future. In addition to available credit lines, the company also has access to financial assets (NOK 0.5bn in money market funds with a short duration) that could be divested to fund its expansionary investment plans.

The Stable Outlook reflects Scope’s expectation that Akershus Energi’s financial risk profile will become more aggressive, but still remain well in line with the agency’s guidelines for the current rating. As previous deleveraging exceeded Scope’s expectations, the anticipated increase in investments will not affect the Outlook. This is exemplified by the rating agency’s anticipation that Scope-adjusted debt/EBITDA will stay between 2.2x and 3.5x in the medium term, which does not justify a rating action at this point.

Scope continues to use a bottom-up approach to analyse Akershus Energi’s parent support under the agency’s Government Related Entities Methodology. The one-notch rating uplift assigned for municipality ownership has not changed. Post 1 January 2020, the company is 100% owned by the Viken county municipality (previously the Akershus county municipality).

Rating-change drivers

A positive rating action is possible if Akershus Energi uses excess free cash flow to pay down debt rather than for high dividends and expansionary investment. This would result in an improved financial risk profile over time, exemplified by the company maintaining Scope-adjusted debt/EBITDA of below 2.2x on a sustained basis.

A negative rating action could be warranted if more aggressive debt-financed growth is pursued or power prices fall substantially, leading to negative free operating cash flow and weaker credit metrics on a sustained basis, e.g. SaD/EBITDA above 3.5x.

Stress testing & Cash flow analysis
No stress testing was performed. Scope performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for this rating and rating outlook (Corporate Rating Methodology, European Utilities Methodology, Government Related Entities) are available on www.scoperatings.com.
Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months

Solicitation, key sources and quality of information
The rated entity participated in the rating process. The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, third parties and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst: Henrik Blymke, Managing Director
Person responsible for approval of the rating: Olaf Tölke, Managing Director
The ratings/outlooks were first released by Scope on 18 January 2019.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
© 2020 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin. Scope Ratings GmbH, Lennéstraße 5, 10785 Berlin, District Court for Berlin (Charlottenburg) HRB 192993 B, Managing Director: Guillaume Jolivet.