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 affirmed the issuer rating of Norwegian utility Eviny AS at A- and revised the Outlook to Stable from Positive. Concurrently, the senior unsecured debt rating has been affirmed at A-, whilst the short-term debt rating has been affirmed at S-1.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business risk profile: BBB (unchanged). Eviny's business risk profile remains largely supported by its market position as Norway's fifth largest hydropower supplier and its monopoly-like position as Norway's third largest regulated electricity distributor through its subsidiary BKK. The business risk profile is further supported in terms of diversification and operating profitability as a direct result of the acquisition of two wind power farms in 2024. Hydropower is considered clean and low-cost generation (positive ESG factor), which ensures a strong position in the region's merit order and enables the provision of peak load capacity due to the company's significant water reservoirs.

In February 2024, Eviny acquired two wind power farms - Guleslettene and Tellenes - which are expected to increase Eviny's total power generation output by almost 20%, from 7.7 TWh to 9 TWh per year, also representing an additional positive ESG factor. The acquisition of the two wind power farms is seen by Scope as beneficial not only in terms of reducing the concentration risk on Eviny's hydro assets, but also in terms of reducing the exposure to spot price volatility, as 86% of expected wind power generation is contracted under power purchase agreements at a fixed price.

While Eviny's cash flow exposure remains heavily geared towards its core business of unregulated hydropower generation in the NO5 price area, the cash flow exposure to electricity distribution (~20% annually) provides stability to the business. Eviny's other businesses include Electrification and Technology, where Eviny builds and manages charging stations for electric vehicles. Although not yet significant in terms of EBITDA contribution to the Group as a whole, this division recently won a contract to build over 1,200 new charging stations in Germany.

Scope expects that the overall favourable market fundamentals and the increased generation resulting from the acquisition of the two wind power farms will continue to support the company's consistently strong profitability, as evidenced by a Group EBITDA margin* of over 60% and an average ROCE of over 25%.

Financial risk profile: A- (unchanged). Eviny's strong financial risk profile continues to support its standalone credit assessment. However, Scope notes that leverage, as measured by Scope-adjusted debt/EBITDA, will likely increase to an estimated 2.9x at year-end 2024, mostly due to the acquisition of the two wind farms but also because spot prices in the NO5 region have decreased significantly from an average of EUR 67/MWh in 2023 to estimated EUR 45/MWh for 2024. This is significantly higher than the 1.3x at year-end 2023, but Scope views the increased leverage as a one-off and it is expected to decline to 2.3x at year-end 2026. Eviny is not expected to increase debt further, as management has stated that it does not plan to acquire any more power generation capacity in the medium term. Average capex for the next few years is estimated at around NOK 2bn (roughly the same as in previous years), of which around half will be used for grid maintenance, around 30% for further expansion of the superchargers and the remainder for maintenance of the hydropower plants. Eviny has implemented an extensive cost reduction programme in recent years and is expected to reach targeted cost savings of NOK 250m in 2025. Scope expects that: i) the cost reduction measure, ii) combined with more stable revenues as a result of NO5 prices expected to stabilise at around EUR 50/MWh per year, iii) the phasing out of volatile legacy hedges - to be potentially replaced by more bilateral PPA contracts, iv) the increased power production of 1.3 TWh from the wind power farms - will together lead to an EBITDA margin above 60% in the medium term.

Debt protection, as measured by EBITDA to net interest paid, has historically been very strong at around 30x, but is expected to weaken to 12.2x in 2024E due to increased leverage, which is still considered strong. Scope expects interest coverage to remain strong at around 12x to 14x over the next few years, despite the increased leverage.

Free operating cash flow in 2023 ended at NOK -2.9bn, as a result of the high tax burden related to the high net profit in 2022, driven by historically high spot prices. For 2024 and beyond, Scope expects it to be positive and to increase significantly.

Liquidity: adequate. Liquidity is deemed adequate as a result of expected large cash reserves of around NOK 2bn at the end of each year going forwards, combined with committed undrawn facilities of NOK 4bn. Scope expects some of the cash reserves and undrawn facilities to be utilised to meet the debt maturities of NOK 5.2bn in 2025.

Supplementary rating drivers: +1 notch. The rating incorporates a one-notch uplift to the standalone credit assessment of BBB+, resulting in an issuer rating of A-. Scope has applied a bottom-up approach under the framework outlined in Scope’s Government Related Entities Methodology, reflecting a conservative assessment of the public sponsors’ ability to provide a credit uplift and their willingness to provide financial support if required (which is considered unlikely). The one-notch uplift is in line with all other Norwegian, regional utilities rated by Scope that are majority-owned by one or more municipalities.

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

Outlook and rating sensitivities

The Stable Outlook incorporates limited ratings upside over the next 12 to 18 months and Scope’s expectations that leverage will settle at around 2.5x, supported by a Scope-adjusted EBITDA margin of over 60% and a ROCE of over 25%.

The upside scenarios for the ratings and Outlooks are (individually):

1. Leverage standing below 1.5x on a sustained basis.
    
2. Improvement of the business risk profile, e.g. through further improved diversification or operating profitability.

The downside scenarios for the ratings and Outlooks are (individually):

1. Leverage standing at 3.0x or above.
    
2. Change in the company’s status as a government-related entity (deemed remote).

Debt ratings

The rated debt is issued by Eviny AS. Senior unsecured bonds display standard bond documentation, including pari passu and negative pledge.

Scope has affirmed the rating for the senior unsecured debt at A-, in line with the rating action on the underlying issuer rating.

The affirmed S-1 short-term debt rating is based on the underlying A-/Stable issuer rating and a solid short-term debt coverage, as well as good access to external funding from banks and debt capital markets.

Environmental, social and governance (ESG) factors

As a producer of clean hydroelectric and wind power, Eviny’s business model revolves around sustainability, fulfilling the UN’s sustainable Development Goal 7 (Affordable and clean energy). This is signalled by the company’s very low carbon intensity, with a specific intensity of less than 22gCO2e/kWh. Such a position: i) rules out transition risks; and ii) ensures high utilisation of the hydro and wind power generation portfolio and very strong position in the merit order, a high margin, and robust cash flow generation. Moreover, the exposure to hydropower generation guarantees a consistent GRE status.

All rating actions and rated entities

Eviny AS

Issuer rating: A-/Stable, Outlook change

Senior unsecured debt rating: A-, affirmation

Short-term debt rating: S-1, affirmation

*All credit metrics refer to Scope-adjusted figures.
 
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, (General Corporate Rating Methodology, 16 October 2023; European Utilities Rating Methodology, 17 June 2024; Government Related Entities Rating Methodology, 4 September 2024), 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 August 2018. The Credit Ratings/Outlook were last updated on 29 September 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
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis 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.