DBRS Morningstar Confirms Acciona S.A. and Acciona Financiación Filiales, S.A.'s Ratings and Removes Them from Under Review with Developing Implications

DBRS Ratings GmbH (DBRS Morningstar) confirmed Acciona S.A.'s (Acciona or the Group) Issuer Rating at BBB, as well as its Short-Term Issuer Rating at R-2 (middle). Concurrently, DBRS Morningstar confirmed the rating on Acciona Financiación Filiales, S.A.'s (AFF) Euro Medium Term Notes (EMTN) programme at BBB. All Trends are Stable. DBRS Morningstar also removed all the ratings from Under Review with Developing Implications, where they were placed on 1 March 2021 following the announcement that the Group had initiated the process for an Initial Public Offering (IPO) relating to the shares of its subsidiary, Corporación Acciona Energías Renovables, S.A. (CAER or the Company).

KEY RATING CONSIDERATIONS
From now onwards, Acciona’s ratings will be largely based on CAER's ratings and an assessment of the Group's Infrastructure Division, adjusted for structural subordination, leverage at the non-energy business level, and potential mitigant factors. Over the forecast horizon to 2024, excluding the Group’s other activities, CAER is expected to account for approximately 70% of Acciona's aggregated EBITDA, with the remaining 30% mainly generated by the Group's Infrastructure Division.

The rating confirmations and Stable trends consider DBRS Morningstar's view that: (1) Acciona retains a substantial 82.723% ownership in CAER (currently rated BBB (high) with a Stable Trend), is committed not to lower its stake in CAER to below 70%, and continues to benefit from substantial EBITDA and cash flow contributions from CAER post-IPO; (2) the credit quality of the Group's Infrastructure Division, in particular construction activities, is weaker than the Group’s regulated and non-regulated generation businesses and a limiting / pressuring factor on the Group's ratings; (3) credit metrics at Acciona remain solid and continue to support the BBB ratings; (4) although a material amount of debt has been transferred to and will be issued by CAER, Acciona's ratings are confirmed at one notch lower than CAER's ratings, reflecting the structural subordination of Acciona's debt compared with CAER's debt; (5) the ratio of Acciona's modified non-consolidated debt with respect to its modified non-consolidated capital structure will decrease to the 20-30% level over the forecast horizon, not requiring further negative adjustments; and (6) the liquidity position of the Group is considered to be moderately positive, with Acciona having cash and cash equivalents of approximately EUR 2.2 billion as of 30 June 2021, availability under its banking lines, and access to the debt and equity capital markets.

RATING DRIVERS
Given Acciona’s current capital expenditure plan, project development risk, and financing strategy at the CAER level, as well as the weaknesses generated in the Infrastructure Division by the Covid-19 pandemic, a positive rating action in the medium term is considered very unlikely. On the other hand, a negative rating action could occur as consequence of: (1) a change in business mix which materially increases the EBITDA contribution from the Group’s construction activities, (2) a slower-than-expected recovery in the financial performance of non-energy activities by 2023-2024, (3) a change in CAER’s ownership to below the 70% level, (4) significant project delays and cost overruns associated with CAER’s aggressive expansion plan, (5) a material increase in CAER’s exposure to commodity risk, (6) a decline in credit metrics to below DBRS Morningstar’s required levels, or (7) a deterioration in the Group’s liquidity position, including reduced access to the bank, debt, and equity capital markets.

RATING RATIONALE
Acciona’s ratings are supported by the Group’s: (1) stable cash flows from regulated generation assets in Spain, (2) long-term contracts for its international generation assets, (3) strong construction, operational, and technical expertise, (4) geographic and business diversification, (5) stable cash flow from service activities in water, concessions, and other services, (6) substantial infrastructure backlog for growth. Acciona’s ratings are constrained by the Group’s: (1) capital expenditure intensity and project development risk, (2) exposure of non-regulated generation to price volatility in the long term, (3) exposure of construction activities to potential cost overruns and long lead times; (4) operational risk, (5) currency and interest risk, and (6) intense competition.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology are the Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (24 September 2021), https://www.dbrsmorningstar.com/research/384922/, Rating Companies in the Independent Power Producer Industry (10 May 2021), https://www.dbrsmorningstar.com/research/378166/, Rating Companies in the Construction and Property Development Industry (20 November 2020), https://www.dbrsmorningstar.com/research/370316/, DBRS Morningstar Criteria: Guarantees and Other Forms of Support (31 May 2021), https://www.dbrsmorningstar.com/research/379424/, and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (2 November 2020), https://www.dbrsmorningstar.com/research/369167/, which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/.

The primary sources of information used for these ratings include annual reports and financial statements, interim financial statements, quarterly reports and financial statements, interim management statements, management projections and budgets, and external correspondence. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/385663/acciona-sa-and-acciona-financiacion-filiales-sa-sensitivity-analysis.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Giuseppe Fresta, Vice President
Rating Committee Chair: Andrew Lin, Managing Director
Initial Rating Date: 23 April 2020
Last Rating Date: 1 March 2021

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-- Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (24 September 2021), https://www.dbrsmorningstar.com/research/384922/.
-- Rating Companies in the Independent Power Producer Industry (10 May 2021), https://www.dbrsmorningstar.com/research/378166/.
-- Rating Companies in the Construction and Property Development Industry (20 November 2020), https://www.dbrsmorningstar.com/research/370316/.
-- DBRS Morningstar Criteria: Guarantees and Other Forms of Support (31 May 2021), https://www.dbrsmorningstar.com/research/379424/.
-- DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (2 November 2020), https://www.dbrsmorningstar.com/research/369167/.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.