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

Rating action

Scope Ratings GmbH (Scope) has assigned a BBB/Stable issuer rating to Norwegian utility company TrønderEnergi AS (TE). Scope has also assigned a senior unsecured debt rating of BBB and a S-2 short-term rating.

Rating rationale

TE’s issuer rating is supported by the company’s business risk profile, which benefits from the company’s environmentally friendly and low-cost hydropower production (positive ESG factor), as well as exposure to monopoly power distribution through its minority stake in Tensio. The business risk profile is constrained by the company’s limited geographical diversification across different electricity pricing areas, exposure to price volatility for unhedged power production volumes and some transactional event risks.

Scope’s assessment of the financial risk profile of TE is largely forward looking due to the company’s new structure after the recent transaction with HitecVision. Although the transaction will initially increase the SaD/EBITDA ratio, the multiple should improve to around 3.5x in 2023-24E. Moreover, the consistency of discretionary and free operating cashflow should become more evident, as TE is likely to undertake limited expansionary capex after the transaction, thereby supporting the financial risk profile.

In March 2022, TE agreed with HitecVision to establish a new company whose future growth will depend on renewables and energy services. The rationale is that TE is finding it difficult to pursue such a strategy alone due to the high capital requirements and its municipality owners’ preference for stable dividends, as well as government restrictions on non-public ownership in hydro assets. In the transactional terms, HitecVision will contribute cash corresponding to the value of assets transferred from TE. The transaction is scheduled to close in the second half of 2022.

Outlook and rating-change drivers

The Stable Outlook reflects Scope’s expectation that the proposed transaction with HitecVision will go through, and that TE will be willing and able to reduce the initially estimated higher leverage ratio during next year. Further, it assumes TE should generate positive FOCF, based on Scope’s current power price assumptions and the stable cash dividends received from Tensio. The Outlook also reflects Scope’s expectation that TE’s majority municipality ownership will remain unchanged.

A positive rating action is currently remote given the estimated transactional impact, and Scope’s assumption that the owners will most likely prefer to increase the dividend rather than operate the new TE with a more conservative capital structure than needed.

A negative rating action is possible if achieved power prices fall more than expected or the company announces a more aggressive financial policy leading to additional investment, higher dividends, or new structural transactions that result in negative FOCF or Scope-adjusted debt/EBITDA of above 3.75x on a sustained basis.

Long-term and short-term debt ratings

At YE 2021, the company had NOK 1.3bn in cash plus NOK 400m in marketable securities, which is well above the NOK 347m in short-term debt. Scope’s assessment justifies an assignment of S-2 short-term rating, while the senior unsecured debt is assigned at BBB (in line with the issuer rating).

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

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (Corporate Rating Methodology, 6 July 2021; Rating Methodology: European Utilities, 17 March 2021; Rating Methodology: Government Related Entities, 5 May 2021), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. 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 Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Henrik Blymke, Managing Director
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 22 June 2022

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use/exclusion of liability
© 2022 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis 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.