January 16, 2013 / 12:21 PM / in 5 years

TEXT-Fitch affirms Enel and Endesa at 'BBB+';negative outlook

(The following statement was released by the rating agency)

Jan 16 - Fitch Ratings has affirmed Spanish utility Endesa and its Italian parent company Enel Spa’s Long-term Issuer Default Ratings (IDR) and senior unsecured ratings at ‘BBB+’ and removed them from Rating Watch Negative (RWN). The Outlook on both companies is Negative. A full list of rating actions is below.

The rating actions follow the approval by the Spanish Government on 27 December 2012 of a Royal Decree broadly in line with the draft law presented earlier in the year containing a list of measures designed to eliminate the unbalance between the electricity system’s access costs and revenues that create the electricity sector’s tariff deficit (TD). The TD is booked on companies’ accounts under their financial receivables.

The removal of the RWN highlights the lower risk for utilities in the sector of wider and harsher measures impacting their financial profiles and the reduced risk of a partial or full write off of past deficits that companies net off from their net financial position. However, the tax scheme on electricity generation introduced by the decree aimed at reducing the deficit from 2012, together with the regulatory changes affecting the electricity distribution segment introduced earlier in Q212 will negatively impact Endesa’s Spanish earnings from 2013.


- Monetisation of Past TD Slowing Down

As expected by Fitch the securitisation of past TD significantly slowed down in 2012 as a result of the correlation between the market access for the Spanish sovereign debt and the TD securitisation notes that benefit from the Spanish sovereign guarantee. In 2012, FADE (securitisation vehicle for the TD) issued 50% of the amount placed in 2011, reflecting the instability that characterised the Spanish sovereign debt market over the past 10 months.

Fitch estimates that at YE12 Endesa’s TD outstanding figure was around EUR5bn. The slowdown of the monetisation has a negative financial impact on Enel/Endesa’s credit metrics due to the relatively high outstanding gross debt stalling above EUR60bn since 2009 (EUR63bn at September 2012).

- Future Tariff Deficit

Fitch highlights that the government has eradicated the legal limits for the generation of the TD previously established at EUR1.5bn for 2012 and zero in 2013. This implies that the TD for 2012 above the previous limit will be transferred to the amount to be securitised by FADE. We believe that the Spanish electricity system will likely continue generating a TD beyond 2013.

- Regulatory Environment Remains Weak

Despite the clear intention of the Spanish government to eliminate the TD issue and revert to a system where electricity tariffs are fully cost reflective, Fitch believes that a degree of regulatory risk in the Spanish electricity system remains. Furthermore, the fact that a critical issue such as the TD is addressed by decree law rather than a wider reform framework under the direction of the sector regulator acting with a clear mandate from the relevant institutional bodies and in consultative manner is not best practice. This remains a weakness for the sector.

- Rating Linkage and Sovereign Correlation Risk

Due to the stronger financial profile, Endesa’s rating at this level is capped by that of Enel and not by the Spanish sovereign rating. Also Enel’s rating is not currently constrained by the rating of Italy (or Spain). However, due to the sovereign guarantee on TD’s securitisation notes the ability to monetise the TD is correlated to the pressure on the sovereign creditworthiness and market access.


The Outlook on Enel and Endesa 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 (revision of Outlook) include:

- Funds from operations (FFO) net leverage below 4.5x and FFO interest coverage above 4.0x on a sustained basis

- Improvement of market conditions in Italy and Spain, recovery of electricity demand and reduction of overcapacity

- Improvement of sovereign creditworthiness contributing to a faster monetisation of past TD

- Comprehensive reform of Spanish electricity sector supporting long-term investment return

Future developments that could lead to a negative rating action include:

- FFO net adjusted leverage above 4.5x and FFO interest coverage below 4.0x on a sustained basis

- Deterioration of the Italian / Spanish sovereign rating risk to a point that it would trigger an automatic downgrade

- Deterioration of the Italian/Spanish economic outlook requiring a downward adjustment of earnings expectations

- Deterioration of market access increasing cost of debt beyond coverage ratios guidelines


Enel’s group available liquidity covers maturities up to 2015. Cash and available committed credit lines as of end of September 2012 amount to EUR7.2bn and EUR14.4bn, respectively, committed lines include EUR12bn expiring after 2014. According to Fitch’s forecasts, Enel group is expected to remain free cash flow positive over 2013-2014.


Enel, S.p.A.

Long-term IDR affirmed at ‘BBB+’ removed from RWN, Outlook Negative

Short-term IDR affirmed at ‘F2’ removed from RWN

Senior unsecured rating affirmed at ‘BBB+’ removed from RWN

Enel Finance International NV

Senior unsecured rating affirmed at ‘BBB+’ removed from RWN

Short term IDR affirmed at ‘F2’ removed from RWN

Enel Investment Holding BV

Senior unsecured rating affirmed at ‘BBB+’ removed from RWN

Endesa, S.A.

Long-term IDR affirmed at ‘BBB+’ removed from RWN, Outlook Negative

Short-term IDR affirmed at ‘F2’ removed from RWN

Senior unsecured rating affirmed at ‘BBB+’ removed from RWN

Preferred Stock affirmed ‘BB+’ removed from RWN

Endesa’s ratings are equalised with the ratings of its Italian parent Enel S.p.A.

International Endesa BV

Commercial paper rating affirmed at ‘F2’ removed from RWN

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