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

Rating action

Scope Ratings GmbH (Scope) has today upgraded the issuer rating of TrønderEnergi AS (‘TE’) to BBB+ from BBB and changed the Outlook to Stable. Scope has also upgraded the senior unsecured debt rating to BBB+ from BBB and affirmed the S-2 short-term debt rating.

The rating upgrade reflects Scope's expectation that TE will continue to be highly profitable, as evidenced by an expected Scope-adjusted EBITDA margin of around 45%, as well as a Scope-adjusted debt/EBITDA of below 3.0x. The rating upgrade reflects the likelihood that TE's profitability will improve in the medium term as legacy hedges entered into at low prices are phased out of the hedge portfolio.

Key rating drivers

Business risk profile: BBB-. The business risk profile continues to benefit from the company's environmentally friendly and low-cost hydropower generation in central Norway (positive ESG factor) and its exposure to monopolistic electricity distribution through its minority stake in Tensio AS. Profitability remains a key strength in the company's competitive position. TE's Scope-adjusted EBITDA margin at year end 2023 was 41%, almost unchanged from 43% in 2022. A Scope-adjusted EBITDA margin of 41% is considered very strong, and Scope expects it to remain stable at around to 45% in 2024 and beyond. The company's highly profitable hydropower subsidiary, TrønderEnergi Kraft AS, of which TE owns 81% at equity level remains the only consolidated business after all other assets have been transferred to the newly established, jointly owned growth company Aneo in October 2022.

Financial risk profile: BBB+ (improved from BBB). TE's improved financial risk profile is supported by strong EBITDA margin of 41% at year-end 2023 and a decrease in leverage. Based on a flat power price assumption for the NO3 zone in 2024-2026 of EUR 40/MWh and dividends from Tensio assumed at NOK 100m per year, Scope-adjusted EBITDA is expected to increase to around NOK 650m in 2024-2025 from NOK 612m in 2023. This should support faster-than-expected deleveraging with Scope-adjusted debt/EBITDA expected to be around 2.7x in 2024-2025. Given the high capex visibility mainly comprising hydro maintenance, Scope believes the main risk factors for weaker-than-forecast credit metrics are lower prices achieved. In addition to improved leverage, Scope expects TE to maintain high internal financing capacity, supported by low and predictable capex of around NOK 125m per year. Interest cover for TE has been consistently high over the past few years at more than 10x, and Scope expects it to remain at this level in the medium term.

Liquidity: adequate. The liquidity profile remains very strong as exemplified by liquidity ratios consistently above 200%.

Supplementary rating drivers: +1 notch. The issuer rating incorporates a one-notch uplift on the standalone credit assessment of BBB, leading to an issuer rating of BBB+. This reflects the company’s status as a government-related entity. Scope has applied a bottom-up approach using the framework outlined in Scope’s Government Related Entities Methodology. The conclusion of a one-notch uplift reflects the public sponsor’s capacity and willingness to provide financial support, if needed, and is in line with Scope’s assessment of other Norwegian regional utilities it rates that are majority-owned by at least one municipality.

TE's financial policy has no impact on the rating. However, Scope points out that the board has recently decided to limit dividend payments to NOK 150m per year. This dividend policy can be reviewed every four years, at the earliest in 2027. Scope views this as positive, as it shows a willingness to adjust payouts to capacity.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s expectation that power prices in the NO3 zone will remain at around EUR 40/MWh into 2025 and beyond, coupled with TE not planning material growth capital expenditure and/or additional shareholder remuneration beyond that included in Scope's base case.

The upside scenario for the ratings and Outlook is:

• Further improvement of the financial risk profile, exemplified by Scope-adjusted debt/EBITDA significantly below 2.5x on a sustained basis.

The downside scenario for the ratings and Outlook is:

• Deterioration of the financial risk profile, exemplified by Scope-adjusted debt/EBITDA significantly above 3.5x on a sustained basis.

Debt ratings

The rated debt is issued by TrønderEnergi AS. The senior unsecured debt rating includes standard wording, including pari passu and negative pledge.

Scope has upgraded the rating for the senior unsecured debt to BBB+, in line with the upgraded issuer rating.

The affirmed short-term debt rating of S-2 is backed by the strong short-term liquidity cover and conservative liquidity management. The rating is further supported by well-established bank relationships and good standing in the capital markets.

Environmental, social and governance (ESG) factors

As a producer of clean hydroelectric power and to an increasing extent other renewable energy sources, TE’s business model revolves around sustainability, fulfilling the UN’s Sustainable Development Goal 7 (Affordable and clean energy). This is solidified by the company’s very low carbon intensity, with a specific carbon intensity of less than 20gCO2e/kWh. Such a position: i) rules out transition risks; and ii) ensures high utilisation of the hydropower generation portfolio and very strong position in the merit order; as well as a high margin, robust cash flow generation and limited headwinds from regulation and political interference. Moreover, the exposure to hydropower generation guarantees a consistent GRE status.

All rating actions and rated entities

TrønderEnergi AS

Issuer rating: BBB+/Stable, upgrade

Senior unsecured debt rating: BBB+, upgrade

Short-term debt rating: S-2, affirmation

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, (European Utilities Rating Methodology, 17 June 2024; General Corporate Rating Methodology, 16 October 2023; Government Related Entities Rating Methodology, 13 July 2023), 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 these 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 and/or Outlook 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: Kristine Bugge Lie Owe, Associate 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. The Credit Ratings/Outlook were last updated on 27 June 2023.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties. 

Conditions of use/exclusion of liability
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