(The following statement was released by the rating agency)
Dec 10 - Fitch Ratings has affirmed Enagas S.A.'s
Long-term Issuer Default Rating (IDR) at 'A-'. Fitch has also assigned Enagas
Transporte, S.A.U., the wholly owned operating subsidiary (opco), a Long-term
IDR of 'A-'. The Outlook on the IDRs is Negative. A full list of rating actions
Enagas' ratings are constrained by the sovereign, largely due to lack of
geographical diversification. Enagas' credit profile is supported by its low
business risk as the natural monopoly gas transmission owner and operator in
Spain and good predictability of its regulated earnings with minimal exposure to
volume and price risks.
- Ratings Constrained
The IDRs of Enagas and its opco remain constrained by the sovereign rating of
the Kingdom of Spain ('BBB'/Negative). According to Fitch's approach, primarily
domestic issuers in the eurozone can be rated up to two notches above their
sovereign (at Spain's current rating level). Enagas generated more than 95% of
its earnings in 2011 in Spain.
The Negative Outlooks match that on the sovereign rating and indicate downside
rating potential in the event of a sovereign downgrade.
- Stronger Unconstrained Profile
Fitch views Enagas' unconstrained credit profile as commensurate with a 'A' IDR,
reflecting the consolidated credit metrics, structural subordination of its
creditors to those at opco level, and the regulatory ring fence around opco,
including lack of upstream guarantees. Opco's unconstrained credit profile is
commensurate with a 'A+' IDR, due to its stronger financial profile. It holds
the bulk of the regulated assets and earnings but holds or guarantees only
around 70% of Enagas' consolidated debt.
- Regulatory Measures
Fitch continues to view Enagas' dominant position in Spanish gas transmission
and ownership of strategic gas infrastructure, including high-pressure gas
pipelines, underground natural gas storage and regasification plants, as a key
rating driver. Fitch assumes that pending regulatory measures to be adopted in
Spain are unlikely to affect the current ratings of Enagas and opco due to the
- Change in Debt Location
Following the creation of opco due to regulatory requirements in July 2012,
Enagas remains the borrower only under its Euro Commercial Paper Programme
(EUR423m issued as of October 2012) and credit lines (EUR836m drawn as of
October 2012). Enagas' liabilities are not guaranteed by the opco, but it
maintains most of the liquidity.
Long term debt and regulated assets have been or are being transferred to opco
or are issued by Enagas Financiaciones, S.A.U. (finco), including the EUR2bn
EMTN Programme, which is guaranteed on a joint and several basis by Enagas and
- Subordinated Unpaid Interests of the EMTN Notes
Fitch considers that the finco's noteholders could have a slight disadvantage
from a recovery prospects perspective, as under Spanish law, interest on the
notes accrued but unpaid as at the commencement of any insolvency proceeding
relating to the issuer will constitute subordinated obligations of the issuer
ranking below its other unsecured and unsubordinated obligations. However, finco
currently has no obligations other than the notes.
- Senior Unsecured Notch Uplift
The additional notch above the IDR applied to the debt instruments of utilities
with a large portion of regulated income, reflecting higher anticipated
recoveries in the event of default, is not applied if that uplift would exceed
the sovereign's foreign currency ratings. Instead, the senior unsecured debt
rating is re-aligned with the utilities' IDR. Fitch believes that the
traditionally higher rates of recovery for utilities' debt are less predictable
in a distressed sovereign environment than in the case of an idiosyncratic
default of a single utility.
RATING SENSITIVITY GUIDANCE:
Positive: The current Rating Outlook is Negative. As a result, Fitch's
sensitivities do not currently anticipate developments with a material
likelihood, individually or collectively, of leading to a rating upgrade. Future
developments that may nonetheless potentially lead to a positive rating action
- A positive rating action on Spain would lead to a positive rating action for
Enagas, opco and finco's guaranteed notes, assuming their current unconstrained
profile remains is unchanged.
Negative: Future developments that could lead to negative rating action include:
- A negative rating action on the sovereign would likely be replicated for the
ratings of Enagas, opco and finco's guaranteed notes, given the limited
geographical diversification of the group.
- Should the sovereign rating remain unchanged, an increase in Enagas' group
funds from operations (FFO) net adjusted leverage to around 5.5x or above, on a
sustained basis, would lead to a downgrade of its Long-term IDR. Opco's and
finco's guaranteed notes rating would remain at the current level if opco's FFO
net adjusted leverage remains below 5.0x (taking into account guaranteed debt).
LIQUIDITY AND DEBT STRUCTURE
Enagas' liquidity position, with EUR1.8bn of cash and cash equivalents and
EUR785m of undrawn credit facilities as of October 2012, covers debt maturities
for the next 18 months. However, Fitch notes that a significant portion of the
undrawn credit facilities is held with Spanish banking entities. Although the
liquidity is largely held by Enagas S.A., it can be provided to opco without
limitations. Fitch anticipates Enagas' free cash flow to be neutral (having been
historically negative) as the company reduces its growth capex and maintains
dividend payout at 70%.
Long-term IDR affirmed at 'A-', Negative Outlook
Short- term IDR and EUR1bn ECP affirmed at 'F2'
Senior unsecured rating of 'A-' withdrawn
EUR500m notes due 2015 and JPY20bn notes due 2039, affirmed at 'A-' and
transferred to Enagas Transporte, S.A.U.
Enagas Financiaciones, S.A.U.
Final senior unsecured rating on EUR750m notes issued under EUR2bn EMTN
Programme guaranteed by Enagas, S.A. and Enagas Transporte, S.A.U. assigned at
Enagas Transporte, S.A.U.
Long-term IDR assigned at 'A-', Negative Outlook
Senior unsecured rating assigned at 'A-'