For the accompanying rating report, please click here.

Rating action

Scope Ratings GmbH (Scope) has today assigned a long-term issuer rating of AA in both local and foreign currency to Vegfinans AS and its financing subsidiaries ‘Vegfinans Innlandet AS’, ‘Vegfinans Viken AS’, and ‘Vegfinans Vestfold og Telemark AS’. Scope has also assigned these entities a short-term issuer rating of S-1+ in both local and foreign currency. All Outlooks are Stable.

The AA/Stable issuer rating for the parent company Vegfinans AS (Vegfinans) and for its financing subsidiaries ‘Vegfinans Innlandet AS’, ‘Vegfinans Viken AS’, and ‘Vegfinans Vestfold og Telemark AS’, reflects several key drivers:

• Integration with the public sponsors: Strong governmental collaboration and a regulatory framework enhance Vegfinans' cash flow predictability and strategic positioning in toll collection across its owner counties. Unlike commercially driven international toll operators, Vegfinans prioritises public policy goals over profit, focusing on paying down separate road projects within each region as tolls are collected—reflected in significant annual depreciations.
   
• Control, regular support and likelihood of exceptional support: Vegfinans' role as a government-related entity (GRE) is critical for financing major toll road infrastructure and managing toll income stations, supporting regional development in line with national transportation plans. This is supported by substantial financial backing from debt guarantees provided by the owner counties for the debt issuances of the financing companies, ensuring favourable financing conditions for infrastructure projects.
   
• Stand-alone fundamentals: Vegfinans demonstrates strong standalone fundamentals with a solid market position across its shareholder counties, a stable toll revenue base, high profitability, indicated by substantial EBITDA margins, and a favourable debt profile. High leverage, significant capital expenditures, and limited flexibility in adjusting toll rates independently are credit challenges.

Key Rating Drivers

The first driver of the AA rating is the robust integration of Vegfinans with the public sponsors, which underpins Scope’s adoption of its ‘top-down’ approach to the ratings.

Vegfinans is a regional toll company in southeastern Norway (AAA/Stable), jointly owned with equal shares by the county municipalities Akershus, Buskerud, Innlandet, Telemark, Vestfold, and Østfold. Unlike commercial toll operators, Vegfinans focuses on break-even performance, focusing on paying down separate road projects as tolls are collected, as reflected in significant annual depreciations.

Vegfinans' primary function is to finance road projects by collecting tolls on government-owned roads. Road maintenance is typically handled by the Norwegian Public Roads Administration and other public entities. The projects undertaken by Vegfinans align with long-term county transportation plans, enhancing the entity's cash flow predictability.

The company's activities are also coordinated with the Norwegian Public Roads Administration, ensuring alignment with national transportation policies. This strong government collaboration supports Vegfinans' strategic positioning in toll collection across its owning counties, underpinned by strong economic fundamentals that ensure sustainable demand for its services.

The second driver of the AA rating is the strong control and high financial support from the public sponsors, as well as the high likelihood of exceptional support for Vegfinans if needed.

Vegfinans holds significant strategic importance to its public sponsors due to its essential role in regional transportation infrastructure. This is a primary county responsibility, which together with education represent around 75% of county operating expenditure. Vegfinans’ exclusive role in toll revenue collection and management, which is vital for funding key infrastructure projects, reinforces its strategic importance to the counties. In case of financial challenges, this strong alignment with core public services increases the probability that sponsors would intervene to ensure Vegfinans’ continued operation.

Vegfinans operates under a governance framework where its mission, strategy, as well as operational and financial activities are strongly influenced and defined by public law and resolutions from its public sponsors. This coordination ensures that Vegfinans' strategic undertakings align with national transportation goals.

Vegfinans also benefits from debt guarantees provided by county governments for the debt issuances and loans of its financing companies. These guarantees facilitate financing under favourable terms to fund extensive regional transportation projects. Additionally, state government grants have averaged 18.9% of Vegfinans' operating revenue from 2021 to 2023, enabling the organisation to support capital projects without heavily relying on toll revenue or additional debt.

Finally, the AA rating considers Vegfinans’ robust standalone fundamentals.

The rating also reflects Vegfinans’ robust standalone fundamentals, underscored by its monopoly position within its owning counties, a stable toll revenue base, and high profitability as highlighted by substantial EBITDA margins of around 95%. These strengths are constrained by high leverage, significant capital expenditures and limited flexibility in adjusting toll rates independently.

The business risk profile is characterised by a strong market position within its owning counties. Vegfinans has a monopoly on toll collection within its owning counties, underpinned by strong economic fundamentals that ensure sustainable demand for its services. Vegfinans has demonstrated steady toll income growth, rising from NOK 2.46bn in 2018 to NOK 3.12bn in 2023, a 27% increase over six years. The toll income growth is driven by increased traffic volumes, strategic rate adjustments, network expansion, supportive tolling policies and efficient toll collection. Looking ahead, Vegfinans is likely to benefit from increased traffic volumes driven by economic and population growth, and urbanisation in southeastern Norway. Periodic toll rate adjustments to address inflation and maintenance costs could further support revenue growth.

Vegfinans has limited flexibility in setting toll rates as is the case for other toll operators in Norway, as toll rates and toll road projects are set through multi-stakeholder agreements involving local and national governments. However, strong government collaboration and a regulatory framework that supports a structured approach to toll rate setting, ensure that any changes in toll rates are consistent with long-term planning, enhancing Vegfinans' cash flow predictability. Moreover, Vegfinans can address toll rate limitations through inflation adjustments and mechanisms to align rates with the Government Proposition, particularly when discounted EV tolls reduce averages. In cases of financial strain, Vegfinans may request a 20% rate increase and/or a five-year collection extension. These measures, requiring unanimous local political approval, offer a structured approach to maintaining financial sustainability.

Despite some fluctuations in EBITDA, the EBITDA margin remained consistently high at 95.5% in 2023. Its steady increase over time, even in years of declining EBITDA, indicates Vegfinans’ focus on cost control. Unlike commercial toll operators, Vegfinans prioritises public policy goals over profit, focusing on paying down separate road projects within each region as tolls are collected—reflected in significant annual depreciations. Despite high EBITDA margins and strong cash flow generation, the accounting impact of writing of activated collection rights limits bottom-line profitability. Vegfinans’ annual results declined to near break-even levels in 2022 and a slight loss in 2023 (NOK -165,000).

Vegfinans’ financial risk profile is characterised by high debt levels. Over the period from 2018 to 2023, the Debt/EBITDA ratio has ranged between 7.3 and 10.4. The increase in total liabilities during high-CAPEX years, such as 2020 and 2023, further highlights Vegfinans’ high reliance on debt to fund infrastructure projects. Vegfinans' total debt stood at around NOK 31bn at end-2023, which increased to over NOK 32bn by mid-October 2024 due to continuous investments. Future debt is expected to rise further to fund major projects like E18 Lysaker-Ramstadsletta, which are backed by strong governmental support. For the E18 Lysaker-Ramstadsletta project, Vegfinans is expected to add a total of NOK 15bn of debt before toll collection begins in 2029, bringing total debt to an estimated NOK 45bn by that year. However, free cash flow is projected to increase, reaching around NOK 5bn in 2030, enhancing Vegfinans’ financial flexibility in the long term.

Vegfinans utilises a mix of long-term amortising loans and bonds with staggered maturities through 2034 to finance infrastructure projects. To mitigate refinancing risks, Vegfinans maintains a minimum average debt maturity of four years, achieving 7.4 years by the end of 2023. Interest rate risks are managed by hedging over 35% of its exposure, with a fixed-rate portion reaching 42% by year-end 2023. Vegfinans effectively manages liquidity through top-level cash pools (Viken, Innlandet, and VoT) to ease upcoming financing needs. However, financing new projects or infrastructure expansions requires approval through a Government Proposition, highlighting regulatory oversight and alignment with national transportation priorities. Additionally, Vegfinans benefits from access to Kommunalbanken AS, Norway's state-owned local government funding agency, which provides low-cost financing to Norwegian sub-sovereigns, including their toll companies like Vegfinans.

Finally, Vegfinans’ debt profile is supported by debt guarantees provided by the owner counties for the loans taken and bonds issued by the financing companies, ensuring favourable financing conditions for infrastructure projects.

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced over the coming 12 to 18 months.

Upside scenarios for the ratings and Outlooks are (individually or collectively):

• Improvement of the combined credit quality of public sponsors; and/or
   
• Stronger integration with the owning counties.

Downside scenarios for the rating and Outlooks are (individually or collectively):

• Deterioration of the combined credit quality of public sponsors;
   
• Weaker integration with the owning counties, for instance via changes to the legal framework or the funding model; and/or
   
• Significant and sustained deterioration of its business risk profile and/or financial risk profile.

Qualitative Scorecards (QS1, QS2)

Scope applies a top-down approach (QS1) in assessing the creditworthiness of Vegfinans. The starting point is Scope’s estimate of the average credit quality of the six county owners of Vegfinans, which is around AA+. This estimate is then potentially negatively adjusted based on the assessment of: i) control and regular support; and ii) likelihood of exceptional support (QS2). The approach also includes a supplementary analysis of the entity’s stand-alone fundamentals.

The adoption of the top-down approach (QS1) reflects the strong integration between Vegfinans and its public sponsors, the counties with ownership stakes, resulting from: i) a ‘limited’ integration assessment for legal status, ii) ‘high’ integration assessment for Vegfinans’ purpose and activities; iii) a ‘high’ integration assessment regarding its shareholder structure; and iv) a ‘high’ integration assessment on financial interdependencies.

Scope assesses control and regular government support for Vegfinans as ‘high’ (QS2) as a result of: i) the ‘high’ government control over Vegfinans’ strategic and operational decision-making; ii) the ‘high’ control over its key personnel, governing and oversight bodies; and iii) the ‘high’ evidence of financial support.

Scope assesses the likelihood of exceptional support to be ‘high’ (QS2), reflecting: i) a ‘high’ assessment for strategic importance for the public sponsor; ii) ‘medium’ substitution difficulty; and iii) ‘high’ assessment of the socio-economic, reputational and financial default implications in the event of a hypothetical default of Vegfinans.

The assessments under QS1 and QS2 result in an indicative rating of ‘AA’. The supplementary analysis of stand-alone business and financial risks has not led to an adjustment of the indicative rating, resulting in a final rating of AA.

Scope assigns the same issuer rating to Vegfinans AS and its financing subsidiaries. The rating approach for Vegfinans and its financing subsidiaries emphasizes the substantial links between the parent company and its subsidiaries. The strong strategic importance and shared name suggest that support from the counties is likely to be extended to the financing companies. The issuer risk analysis predominantly focuses on the subsidiaries' financial and operational integration with the public sponsors' strategic objectives, highlighting the robust support framework established by the counties.

The results were discussed and confirmed by a rating committee.

Environment, social and governance (ESG) factors

Governance and social considerations are integral to Vegfinans’ credit quality and are incorporated into the rating through several analytical areas.

Vegfinans maintains effective governance and operates under strong oversight from county owners, aligning with public transport policies, and adhering to a clear governance framework.

Vegfinans plays a crucial role in enhancing regional connectivity and economic growth by financing roads that improve access and promote social cohesion. It actively engages with local communities to integrate their needs into project planning, showing a commitment to social sustainability.

Environmentally, Vegfinans assesses and mitigates risks in its projects to ensure compliance with national regulations, underscoring its commitment to environmental stewardship and the sustainable development of infrastructure.

Rating committee
The main points discussed during the rating committee were: i) Vegfinans’ role as a regional Norwegian toll road operator and its integration with the owning counties; ii) control and regular support & likelihood of exceptional support; and iii) business and financial risk profiles.

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Government Related Entities Rating Methodology, 4 September 2024), is 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: the Rated Entity and public domain.
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 Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings and/or Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Jakob Suwalski, Senior Director
Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 19 November 2024.

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.

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