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 Ferde AS. Scope has also assigned a short-term issuer rating of S-1+ in both local and foreign currency. All Outlooks are Stable.

The AA+/Stable issuer rating for Ferde AS (Ferde), reflects several key drivers:

• Integration with the public sponsors: Strong governmental collaboration and a regulatory framework enhance Ferde's cash flow predictability and strategic positioning in toll collection across its owner counties. Unlike commercially driven international toll operators, Ferde prioritises public policy goals over profit, focusing on paying down separate road projects within each region as tolls are collected, as reflected in significant annual depreciations.
   
• Control, regular support and likelihood of exceptional support: Ferde's 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: Ferde 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 Ferde with the public sponsors, which underpins Scope’s adoption of its ‘top-down’ approach to the ratings.

Ferde is a regional toll company in southwestern Norway (AAA/Stable), jointly owned with equal shares by the county municipalities Agder, Rogaland, and Vestland. Ferde's primary function is to finance road projects by collecting tolls on government-owned roads. The general mandate is regulated by the main road toll agreement (Bompengeavtalen) between the Ministry of Transport and Ferde. Road maintenance is typically handled by the Norwegian Public Roads Administration and other public entities.

The projects undertaken by Ferde 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 Ferde's strategic positioning in toll collection across its owning counties, underpinned by strong economic fundamentals that ensure sustainable demand for its services.

Ferde's participation in the Directorate of Public Roads' "Regulations 2030 – User Financing" initiative, directed by the Ministry of Transport and Communications, including the review of toll provisions in the Road Act, highlights its alignment with national regulatory goals.

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 Ferde if needed.

Ferde 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. Its exclusive role in toll revenue collection and management, which is vital for funding key infrastructure projects, reinforces Ferde’s 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 Ferde’s continued operation.

Ferde 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 Ferde’s strategic undertakings align with national transportation goals.

Ferde also benefits from debt guarantees provided by county governments, which cover the debt issuances and loans associated with its specific projects. These guarantees facilitate financing under favourable terms to fund extensive regional transportation projects. Additionally, state government grants have averaged 10.1% of Ferde’s 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 Ferde’s robust standalone fundamentals.

Ferde demonstrates robust standalone fundamentals with a solid market position in its owner counties, a stable toll revenue base and consistent toll income growth, 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.

Ferde operates as the regional toll company for the counties of Agder, Rogaland, and Vestland in Norway. The agreement between the Ministry of Transport and Ferde AS (Bompengeavtalen) grants Ferde a monopoly on toll collection within these regions. The strong economic fundamentals in Ferde's counties, with growing urban centers, transport routes, and diverse geography, support Ferde’s revenue potential from commuting, industrial transport, and tourism, even if rate adjustments are constrained.

Ferde 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. Ferde can address toll rate limitations through inflation adjustments and mechanisms to align rates with the Government Proposition, particularly when discounted EV tolls reduce averages. Some of these measures require local political approval. In cases of financial strain on section-specific projects, Ferde may request a 20% toll rate increase and/or a five-year extension of the collection period. For urban packages, potential financial strain necessitates prioritisation among executed projects within the managed portfolio. Moreover, 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.

Ferde maintains a high average EBITDA margin of 93% over the past five years, reaching 94% in 2023, reflecting its resilient business model and disciplined cost management. The financial strategy emphasises achieving break-even performance. The high depreciation of collection rights aligns with Ferde’s business model, as these rights are amortised over the predetermined toll collection period commencing at project initiation.

Ferde’s high EBITDA margin and predictable toll revenue contribute to strong cash flow, supporting its financial stability despite high leverage and significant capital expenditure. This stability, alongside conservative debt management and county guarantees, enhances Ferde’s resilience to economic fluctuations and mitigates refinancing risks.

Ferde’s Debt/EBITDA ratio reflects high leverage, improving from 8.11 in 2020 to 6.69 in 2023. Total liabilities grew from NOK 22.83bn in 2019 to NOK 27.81bn in 2023, with a 5% compound annual growth rate, highlighting continued reliance on debt to finance infrastructure and toll collection projects.

Ferde’s capital expenditures are substantial, driven by a cyclical investment strategy targeting major infrastructure phases, such as in 2019 and 2023. Its CAPEX/Operating Income ratio of 142% in 2023 reflects heavy reliance on external financing. Scope expects debt to surpass NOK 30bn by 2027, with NOK 8bn tied to the Rogfast project, which will weigh on debt metrics until toll collection begins. However, conservative debt management and project-level guarantees up to NOK 16bn mitigate associated risks.

Ferde has shifted towards a diversified funding strategy, increasing bond market financing from 30% in 2019 to 57% in 2023 while reducing reliance on institutional lenders like KBN, whose share dropped from 33% to 10%. Certificates account for 19% of liabilities at end-2023, up from 14% four years earlier, reflecting a more market-oriented approach that balances flexibility with exposure to market risks like interest rate volatility. To manage refinancing risks, Ferde employs a staggered bond maturity schedule with regulatory caps on annual maturities. As of September 2024, 70% of loan debt is variable, with 49.5% hedged to mitigate interest rate risk, contributing to a well-balanced debt profile. The average interest rate after hedging rose from 2.29% in 2022 to 3.85% in 2023 due to rising market rates and stood at 4.20% at end-September.

Finally, Ferde’s 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 scenario for the ratings and Outlooks is:

• 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 Ferde. The starting point is Scope’s estimate of the average credit quality of the three county owners of Ferde AS, which is around AAA. 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 Ferde and its public sponsors, the counties with ownership stakes, resulting from: i) a ‘limited’ integration assessment for legal status, ii) ‘high’ integration assessment for Ferde’s 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 Ferde as ‘high’ (QS2) as a result of: i) the ‘high’ government control over Ferde’s 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 Ferde.

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+.

The results were discussed and confirmed by a rating committee.

Environment, social and governance (ESG) factors

Governance and social considerations are integral to Ferde’s credit quality and are incorporated into the rating through several analytical areas. Ferde's strong oversight by county owners, alignment with public transportation policies, and structured internal governance ensure prudent financial planning, controlled expenditures, and effective debt management to mitigate interest rate and refinancing risks.

Ferde plays a crucial role in enhancing regional connectivity and economic growth by financing roads that improve access and promote social cohesion. Ferde prioritizes social responsibility through adherence to UN Global Compact principles, compliance with the Transparency Act, and proactive alignment with the 2026 EU sustainability directive.

Environmentally, Ferde 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. This is evidenced by its Eco-Lighthouse recognition, updated green framework, and NOK 4.6bn in green bond financing primarily supporting the Bergen Light Rail, part of project Bypakke Bergen.

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

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 did participate in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain and the Rated Entity.
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 25 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.

Conditions of use / exclusion of liability
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