(The following statement was released by the rating agency)
-- Abengoa's recent performance and credit metrics remain in line
with our expectations.
-- We are therefore affirming our 'B+' long-term rating on Abengoa.
-- In accordance with our new criteria on the links between short-term
and long-term ratings for corporate and sovereign issuers, we are assigning a
'B' short-term rating to Abengoa.
-- The stable outlook reflects our expectations that the group will
gradually improve its consolidated leverage ratios from its current peak
through growth in revenues and profitability.
On June 27, 2012, Standard & Poor's Ratings Services affirmed its 'B+'
long-term corporate credit rating on Spain-headquartered engineering and
construction (E&C), technology, and energy group Abengoa S.A. The outlook is
At the same time, we assigned our 'B' short-term corporate credit rating to
We are also affirming our 'B+' issue ratings on Abengoa's EUR300 million and
EUR500 million senior unsecured notes, and on the $650 million senior unsecured
notes issued by Abengoa Finance S.A.U. The recovery rating on these
instruments is '4', reflecting our expectation of average (30%-50%) recovery
in the event of a payment default.
The ratings reflect our continued assessment of Abengoa's business risk
profile as "fair" and its financial risk profile as "highly leveraged."
Following robust revenue and EBITDA growth in 2011, Abengoa's consolidated and
nonconsolidated (excluding all contractually nonrecourse-financed projects)
adjusted debt to EBITDA stood at 9.5x and 6.7x, respectively, at year-end
2011. These credit metrics are in line with our expectations for the current
For a detailed analysis of Abengoa's long-term creditworthiness, see our full
analysis published today on RatingsDirect on the Global Credit Portal.
Following the application of our new criteria governing the link between
long-term and short-term ratings for corporate and sovereign issuers, our
short-term rating on Abengoa is 'B', which takes into account Abengoa's
long-term corporate credit rating and our assessment of the company's
liquidity (see "Short-Term/Long-Term Ratings Linkage Criteria For Corporate
And Sovereign Issuers," published on May 15, 2012).
We assess Abengoa's liquidity as "adequate," as defined in our criteria,
reflecting the substantial cash accumulated by the company, coupled with its
available committed credit lines. The refinancing of the syndicated bank
facility in May 2012 considerably reduced short-term debt maturities and
contributed to smooth the repayment profile from 2013, which further supports
the liquidity position. However, Abengoa's high working capital deficit, and
our expectation that gross debt won't decrease in the short term, prevent us
from revising our liquidity assessment to "strong."
On March 31, 2012 (latest available data), we estimate Abengoa's liquidity
sources at the corporate level by year-end 2012 to be around EUR3 billion,
excluding all contractually nonrecourse-financed projects. Liquidity sources
-- Unrestricted cash balances of EUR2.45 billion,
-- EUR376 million of proceeds from the disposals of Brazilian transmission
-- EUR240 million available under committed long-term credit lines.
This cash is sufficient to cover Abengoa's expected liquidity uses for the 12
months to March 31, 2013, by close to 4x. For that period, we forecast that
uses will include:
-- EUR221 million of debt maturities, after considering the refinancing of
the syndicated facility in May 2012, and
-- About EUR470 million of negative discretionary cash flows (DCF;
operating cash flow after capital expenditures and dividends).
On a fully consolidated basis--including all contractually
nonrecourse-financed projects--we estimate liquidity sources through March 31,
2013 to be around EUR6 billion, comprising:
-- Unrestricted cash balances of EUR3.1 billion,
-- EUR376 million of proceeds from the disposed Brazilian assets,
-- EUR2.3 billion available under committed long-term credit lines as of
the same date, and
-- EUR224 million of equity committed by partners in projects financed on a
After considering the refinancing of the syndicated facility that took place
in May 2012, we view the above cash to be sufficient to cover Abengoa's
expected uses over the next 12 months from March 31, 2012 by 1.5x. These
liquidity needs include:
-- EUR653 million of debt maturities, and
-- Our estimate of about EUR3.4 billion of negative DCF, including a
significant working capital outflow.
Debt maturities for the 12 months from March 2013, after taking into account
the refinancing of the syndicated facility in May 2012, total about EUR1 billion
on a fully consolidated basis (that includes EUR426 million of nonrecourse
maturing debt), which could be almost fully covered by the available sources
described above under our baseline forecast. For 2014, debt maturities total
about EUR900 million at the corporate level and EUR382 million on a nonrecourse
basis. We think these maturities will likely require refinancing based on our
expectation of Abengoa's cash flow generation under our base case.
To date, Abengoa has generated increasingly positive contributions to annual
operating cash flow by actively managing its cash conversion cycle in parallel
with intense growth. As a consequence, the group's overall net working capital
(that is, inventories, plus receivables, minus payables) deficit has
significantly increased, reaching an all-time high of EUR3 billion at the end of
2011 (EUR2.2 billion at the end of March 2012). We believe Abengoa's excess
liquidity partly offsets the risk associated with a potential unwinding of its
working capital deficit, which could occur if Abengoa's strong growth
trajectory slows down materially or if cash conversion conditions deteriorate.
Both the incurrence covenant on Abengoa's senior unsecured notes and the
maintenance covenant on most of the group's bank debt specify debt-to-EBITDA
ratios of less than 3x (where debt and EBITDA exclude nonrecourse
subsidiaries, and debt is netted with total consolidated cash and short-term
financial investments, including those held by nonrecourse subsidiaries).
Furthermore, the syndicated bank facility renewed in May 2012 includes a more
demanding ratio of 2.5x net debt to EBITDA from 2015. As of March 31, 2012,
the ratio was 1.5x, and we expect to company to maintain sufficient covenant
headroom even if EBITDA is to decline by 15%.
The issue ratings on Abengoa Finance S.A.U.'s $650 million senior unsecured
notes due 2017 and on Abengoa's EUR300 million and EUR500 million senior
notes due 2015 and 2016 respectively, are 'B+', in line with our corporate
credit rating on Abengoa. The recovery rating on these instruments is '4',
reflecting our expectation of average (30%-50%) recovery in the event of a
For a detailed recovery analysis, see our full analysis published today.
The stable outlook on Abengoa reflects our view that the group will gradually
improve its consolidated leverage ratios from their 2011-2012 peak through
growth in revenues and profitability. This is despite the group, according to
our expectations, being unlikely to generate positive free operating cash
flows before 2015, owing to a significant capex program and the immaturity of
its project portfolio. At the current rating level, we expect the group to
maintain a ratio of adjusted debt to EBITDA below 10x and on a gradual
downward trend by 2015, when we expect to see positive consolidated free cash
flow following the maturity of a large project portfolio.
We could lower the rating on Abengoa if the potential improvement in financial
ratios proved slower than we currently expect. We think ratings upside could
follow sizable deleveraging and stronger cash flow generation, enabling
Abengoa to deliver ratios of adjusted debt to EBITDA of less than 5x
(corporate level) and 7x (consolidated).
Related Criteria And Research
-- Principles Of Credit Ratings, Feb. 16, 2011
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded,
May 27, 2009
-- Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Sept. 28, 2011
-- Short-Term/Long-Term Ratings Linkage Criteria For Corporate And
Sovereign Issuers, May 15, 2012
-- Abengoa S.A., June 27, 2012
Ratings Affirmed; New Rating
Corporate Credit Rating B+/Stable/B B+/Stable/--
Senior Unsecured B+
Recovery Rating 4
Abengoa Finance S.A.U.
Senior Unsecured* B+
Recovery Rating 4
*Guaranteed by Abengoa S.A.
(Caryn Trokie, New York Ratings Unit)