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

Rating action

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

Rating rationale

The issuer rating of Eidsiva reflects Scope’s assessment of the company’s low business risks and a more aggressive financial risk profile. The Eidsiva/Hafslund E-CO transaction, effective since 30 September 2019, has been successfully implemented and integration has developed largely in line with Scope’s expectations.

Looking into 2020 and beyond, Scope expects more than 80% of Eidsiva’s EBITDA to come from the monopolistic grid business, which is positive for the predictability of cash flow and thus also justifies Eidsiva’s more aggressive financial risk profile. Eidsiva’s improved market shares, good customer diversification and efficiency improvements are all key drivers in Scope’s business risk assessment of the company. Scope also recognises the increasingly good returns of the company’s fibre/broadband operations as well as its profitable district heating business.

Also positive for the financial risk profile assessment is Scope’s expectation that cash flow will be more predictable and less volatile going forward. Leverage and debt protection ratios in the short to medium term are forecast at around 5x and 6.5x respectively, which is more stable and better than historical figures. Free operating cash flow, however, is still expected to be marginal, due to extensive investment plans throughout 2021. In the current year, cash flows have been helped by the disposal of the Moelven shares. However, with sizeable dividend payouts planned and the prospect of lower dividend income from its 42.8% holding in E-CO Energi (due to lower forward power prices seen recently), Scope forecasts discretionary cash flow to remain negative in the medium term.

In terms of liquidity, the transaction with Hafslund E-CO has the largest impact. The payment of the transaction was financed last year with short-term loans, which have been and will continue to be refinanced with long-term loans. As a result, liquidity ratios were negatively affected in YE 2019. However, with a new and increased revolving credit facility as well as new long-term bonds, the liquidity profile is improving as expected this year.

Outlook and rating-change drivers

The Stable Outlook reflects Scope’s expectation that the success so far in integrating Hafslund Nett and Eidsiva Nett will continue and the new Eidsiva group entity will thus generate a significant part of its EBITDA from monopolistic, regulated grid operations. The Outlook also assumes funds from operations and debt protection ratios will improve from 2020 (compared to the past) and that Eidsiva will continue to be owned by Norwegian municipalities.

A positive action could be warranted if overall leverage reduced, via positive free cash flow or asset disposals, exemplified by a Scope-adjusted leverage ratio (Scope-adjusted debt/EBITDA) of around 4x on a sustained basis.

A negative rating action could be triggered by a significantly weaker financial risk profile (coming from higher capex and dividend for instance), exemplified by a sustained Scope-adjusted debt/EBITDA of well above 5.25x and interest cover of below 5x. In addition, it would be triggered if the company lost its GRE (government-related entity) status.

Long-term and short-term debt ratings

The affirmation of the BBB+ senior unsecured debt rating, which is in line with the issuer rating, is based on the company’s standard bond documentation, which includes pari passu and negative pledge. All debt is issued by Eidsiva Energi.

The S-2 short-term rating has also been affirmed and reflects the company’s somewhat constrained (due to transaction-related short-term debt) but improving short-term debt coverage and continued good access to both bank loans and debt markets.

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(s) and/or rating outlook(s) (Corporate Rating Methodology, European Utilities Methodology, Government Related Entities Methodology) 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 and/or its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity 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: Sebastian Zank, Executive Director
The ratings/outlooks were first released by Scope on 8 December 2017. The ratings/outlooks were last updated on 26 March 2019

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings. Scope provided the following ancillary services to the rated entity and/or its agents within two years preceding this credit rating action: Rating Assessment Service.*

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. 

* Editor’s note: This sentence was added on 19 October 2020. It was erroneously omitted upon publication of the credit rating action on 24 March 2020.