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Rating action

Scope Ratings GmbH (Scope) has today affirmed the A- issuer rating of Lyse AS (Lyse) and revised the Outlook to Negative from Stable. Concurrently, Scope has affirmed the senior unsecured debt rating at A- and the short-term debt rating at S-1.

The Outlook revision to Negative from Stable is driven by downward pressure on Lyse’s financial risk profile due to weaker-than-expected credit metrics and cash flow cover. This reflects the higher debt and a related rise in leverage to 3.2x at end-2024, as well as Scope’s expectation that Lyse’s continued investment phase in the Telecom segment will lead to a further debt increase in 2025-2026. Scope believes this limits deleveraging potential in the medium term at current power price levels, and overall increases the risk that leverage will remain above levels required for the current rating.

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

Key rating drivers

Lyse’s A- issuer rating reflects a standalone credit assessment of BBB+ and a one-notch rating uplift for the company's status as a government-related entity.

Business risk profile: BBB+ (unchanged). Lyse’s business risk profile supports the rating and continues to reflect its position as a major domestic utility and telecom company in Norway. It benefits from the company’s strong profitability and diversified business model across non-correlated businesses. The company’s reported EBITDA is mainly generated by a 74.4% stake in the hydropower generator Lyse Kraft DA (positive ESG factor), which is expected to comprise around half of Scope-adjusted EBITDA* in the medium-term, as well as power distribution and telecom infrastructure and services. Challenges still include: i) exposure to volatile power prices for unhedged power generation output; ii) uncertainties around the impact of the likely opening of fiber networks to third-party providers; and iii) execution risk related to the growth strategy within mobile services.

In 2024, Lyse’s EBITDA decreased to NOK 7.6bn from NOK 8.5bn in 2023, with lower power prices in south Norway reducing hydropower generation earnings within Lyse’s Renewable Energy segment. Scope expects EBITDA to range between NOK 8.3bn and NOK 9.4bn over the next few years. The agency believes the increase from 2024 will be driven by Lyse’s Telecom segment amid its growth strategy, with momentum in mobile services, supported by the upward trend in customer growth and market shares, synergies with Altibox in Lyse Tele, and the company’s rollout of Norway’s third national mobile network. Scope notes that Lyse is expected to transition to its own mobile network in 2027, which will have full national 5G coverage and eventually remove the reliance on roaming under the three-year agreement signed with Telenor in October 2024. At the same time, Scope acknowledges that execution risks related to forecasted growth remain.

Financial risk profile: BBB (revised from BBB+). Lyse’s financial risk profile has been revised downwards by one notch due to a weakening of credit metrics and cash flow cover amid increasing debt levels due to high investments.

Debt increased to NOK 24.0bn at end-2024 (end-2023: NOK 19.4bn), exceeding Scope’s expectation of NOK 21.6bn, mainly due to growth investments above the agency’s rating case from April 2024. Looking ahead, Scope expects continued high capex to result in negative free operating cash flow in 2025-2026, driven by Telecom's mobile network rollout and increasing capex in Infrastructure and Circular Energy. Combined with maintenance of the dividend policy, Lyse’s debt is therefore expected to reach around NOK 30bn at end-2026. However, Scope expects debt levels to stabilise from 2027 onwards following the completion of the mobile network rollout, supported by improved cash flow generation from reduced capex and EBITDA growth.

In terms of credit metrics, leverage (debt/EBITDA) rose to 3.2x at end-2024 (end-2023: 2.3x), driven by the debt increase. Scope expects limited room for deleveraging to below 3.0x in 2025-2026, given Lyse's investment ambitions, and forecasts leverage of 3.0x-3.5x over the next few years, which has led to the downward revision of the financial risk profile. This is based on Scope's assumption that achievable power prices will remain similar to those in 2024, with a level in south Norway (NO2 area) of around NOK 600/MWh (2024: NOK 582/MWh). At the same time, Scope expects EBITDA/interest cover to remain strong at 7x-10x.

Scope notes that leverage has varied in 2018-2024 between a maximum of 4.8x (end-2020) and a minimum of 1.2x (end-2022), illustrating the volatility feeding through to Lyse’s financial risk profile from its power price exposure in the Renewable Energy segment. This is still viewed as a credit constraint despite the stabilising effect of the company’s Telecom and Infrastructure and Circular Energy segments.

Liquidity: adequate (unchanged). Lyse’s liquidity remains adequate. It reflects the company’s solid liquidity ratios, bolstered by available cash and cash equivalents of NOK 5.5bn and committed multi-year credit lines of NOK 3.0bn at end-2024. This is expected to support coverage of upcoming debt maturities of around NOK 3.0bn per annum and negative free operating cash flow by more than 110% in 2025-2026.

Supplementary rating drivers: +1 notch (unchanged). Scope defines Lyse as a government-related entity in accordance with its rating methodology for government-related entities. This is based on full public ownership by municipal entities, as required by Lyse’s shareholder agreement, as well as the essential services provided by the company, including power distribution, large-scale hydropower generation, and digital infrastructure like fiber and mobile networks. Based on the bottom-up rating approach set out in its Government Related Entities Methodology, Scope assesses the public owners' capacity ('high') and willingness ('medium') to provide financial support as unchanged and therefore maintains a one-notch uplift to the standalone credit assessment.

One or more key rating factors are considered an ESG factor.

Outlook and rating sensitivities

The Negative Outlook reflects Scope’s expectation that debt/EBITDA will remain above 3.0x over the next few years amid continued high growth investments in 2025-2026 and current power price levels. Overall, this increases the risk of further financial risk profile downside, also considering execution risk related to the forecasted growth of the company’s Telecom segment.

The upside scenario for the ratings and Outlook is:

1. Debt/EBITDA decreasing below 3.0x (Outlook revision to Stable), which would alleviate the risk of further financial risk profile downside.

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

1. Non-materialisation of the upside scenario, with debt/EBITDA not decreasing below 3.0x.
    
2. Loss of government-related entity status (remote).

Debt ratings

The senior unsecured debt rating has been affirmed at A-, in line with the issuer rating.

Concurrently, Scope has affirmed the S-1 short-term debt rating. This based on Lyse’s underlying A-/Negative issuer rating and reflects the company’s better-than-adequate short-term debt coverage and better-than-adequate access to bank and capital markets financing.

Environmental, social and governance (ESG) factors

Scope sees Lyse’s exposure to cost-efficient hydropower generation as a credit-positive ESG factor. Unlike CO2-intensive power generation technologies, hydropower has low transition risks related to decarbonisation, which Scope believes will support the utilisation and long-term cash flow generation of the company's power plants. In addition, Scope notes that Lyse's large-scale hydropower assets are required to be at least two-thirds publicly owned, which underpins the company's status as a government-related entity.

All rating actions and rated entities

Lyse AS

Issuer rating: A-/Negative, Outlook change

Short-term debt rating: S-1, affirmation

Senior unsecured debt rating: A-, 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, 14 February 2025; European Utilities Rating Methodology, 17 June 2024; Government Related Entities Rating Methodology, 10 December 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: Per Haakestad, Analyst
Person responsible for approval of the Credit Ratings: Marlen Shokhitbayev, Senior Director
The Credit Ratings/Outlook were first released by Scope Ratings on 30 May 2017. The Credit Ratings/Outlook were last updated on 8 April 2024.

Potential conflicts
See 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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