DGAP-News: ENCAVIS AG / Key word(s): Rating/Research Update
SCOPE affirms Encavis AG’s investment grade issuer rating ‘BBB-‘ and upgrades outlook to ‘Positive’
“SCOPE’s renewed rating results mirror our solid business model, our profound risk management activities and our consistent financing policy, which we have pursued since 2016 with a clear focus on stable long-term balance sheet ratios”, welcomes Dr Christoph Husmann, CFO of Encavis AG, the upgraded outlook from ‘Stable’ to ‘Positive’. “Encavis’ excellent credit metrics derive from the very good financial performance of the Group and provides us with an increasing range of finance options to secure continuously reduced financing costs”, Husmann added.
The European Rating agency SCOPE has affirmed the long-term ratings for senior unsecured debt at BBB-, subordinated (hybrid) debt at BB and short-term debt at S-2. Significant strengthening in credit metrics paired with the company’s gradually improving geographical diversification and granularity of the own portfolio drive the outlook change to Positive from Stable. Encavis BBB- rating primarily reflects the company’s largely protected position as an independent power producer (IPP) with own generation portfolio that comprises about 2.0 GW in more than 200 renewable power plants. SCOPE believes that Encavis will be able to retain a strong margin, e.g. an EBITDA margin of above 70%, and solid cash flow conversion.
SCOPE believes that Encavis’ business model is broadly protected from the exposure to low power prices through prioritised feed-in of generated electricity under availability-based remuneration schemes and long-term power purchase agreements (PPAs) with creditworthy counterparties. At the same time, it benefits from very high power prices through subsidised projects in Germany and the Netherlands, where feed-in tariff represents a floor price with upside potential, should market prices exceed subsidised prices as well as through exposure to merchant volumes (max. 5% of total).
SCOPE has the opinion that the current high inflation in Europe does not have a significant impact on Encavis’ business activities at present. As Encavis has avoided best-effort supply agreements, the disruption of global supply chains has not yet affected the operation or completion of wind and solar parks.
Despite recent interest rate increases and further potential interest rate hikes, market rates remain below average of the Encavis’ debt portfolio, which enables the Company to refinance its existing debt at improved conditions. The credit metrics are further supported by the conversion of the EUR 150m hybrid convertible into equity in October 2021 and the subsequent issuance of the new EUR 250m hybrid convertible in November 2021 (SCOPE accounts for 50% of this exposure as debt).
Liquidity ratios are expected to stand comfortably above 110% in the foreseeable future, supported by a large unrestricted cash cushion of EUR 264m at the end of June 2022 and committed long-term credit lines of EUR 145m. SCOPE assumes that amortising loans on the project level (EUR 120-130m p.a.) can sufficiently be covered by operating cash flow of the project companies. This is also backed by a significant amount of cash reserves at the project SPVs.
SCOPE maintains its neutral view of Encavis’ financial policy, which the agency believes will help the company to balance expansion with maintaining the quality of its financial risk profile. This is evidenced by the company’s funding measures, such as the use of equity-like financing instruments, the flexible dividend policy going forward, the wide use of financial covenants and cash reserves at project level as well as a minimum equity ratio of 24% (31.2% on June 30st, 2022).
A rating upgrade could be warranted if Encavis maintained EBITDA interest coverage above 4.0x on a sustained basis, together with further improvements in the geographical diversification with focus on jurisdictions with relatively stable regulatory environments and granularity of the own portfolio.
To see the updated issuer report, as well as the rating history including SCOPE's initial public rating on Encavis AG and its debt-issuing subsidiary Encavis Finance BV on March 18, 2019, please click:
Additional information can be found on www.encavis.com
|Große Elbstraße 59|
|Phone:||+49 4037 85 62 -0|
|Fax:||+49 4037 85 62 -129|
|Listed:||Regulated Market in Frankfurt (Prime Standard), Hamburg; Regulated Unofficial Market in Berlin, Dusseldorf, Munich, Stuttgart, Tradegate Exchange|
|EQS News ID:||1440753|
|End of News||DGAP News Service|