The latest information on the rating, including rating reports and related methodologies are available on this LINK.

Rating action

Scope has affirmed its BBB-/Stable issuer rating on Encavis AG and its financing subsidiary Encavis Finance BV. Concurrently, Scope affirmed the long-term ratings for senior unsecured debt at BBB-, for subordinated (hybrid) debt at BB and for short-term debt at S-2.

Rating rationale

The BBB-/Stable issuer rating remains strongly supported by Scope’s view on Encavis’ protected business model. The company’s business profile is bolstered by the prioritised feed-in of generated electricity under availability-based remuneration schemes and risk mitigation through long-term power purchase agreements from a generation portfolio of more than 1.7 GWp from solar and wind power plants across Europe (ESG: credit-positive environmental risk factor). Given the remuneration model for generated electricity and the nature of wind and solar power plants, Encavis’ operating performance is broadly unexposed to Covid-19 related lockdowns (evidenced by the robust EBITDA margin of around 80% for H1 2020). Cash flow fluctuations instead tend to be impacted by weather effects, an uncertainty which Scope expects to be reduced over the next few years with the execution of the company’s “Fast Forward 2025” growth strategy, which earmarks a doubling of capacities by 2025 (3.4 GW in 2025E against 1.8 GW at YE 2020E). The continued ramp-up of the generation portfolio with portfolio additions in uncorrelated regions, e.g. the two new solar power plants in Spain, will significantly reduce incremental effects from specific generation assets or regions in the overall portfolio.

The rating remains constrained by Encavis’ financial risk profile with high leverage including non-recourse debt at project SPV level and modest, but robust, debt protection measures (interest coverage). Indebtedness is expected to remain high, at a level of around 8x (Scope-adjusted debt/EBITDA), as a result of the company’s continued, predominantly debt-financed growth strategy. However, debt protection as measured by EBITDA interest cover is expected to trend towards 4.0x. Scope’s updated forecasts for 2020E-22E signal robust headroom for the company’s EBITDA against the agency’s negative rating trigger. Based on Encavis’ debt maturity profile, sound liquidity measures over the next few years and publicly communicated financial policy, Scope believes that the company will keep debt levels under control as it expands its asset base.

Outlook and rating-change drivers

The Outlook is Stable and incorporates Scope’s expectation that Encavis will keep EBITDA/cash interest coverage above 3.0x into the medium term. Scope also believes the company will continue to acquire renewable energy power plants and increase dividends, leaving free and discretionary cash flows at breakeven. The rating Outlook further assumes that Encavis will provide financial support to a project SPV if needed to prevent reputational damage spreading to the whole group.

Scope would consider a negative rating action if EBITDA/cash interest coverage fell below 2.75x. e.g. as a result of lower operating cash flows due to major operational disruptions or rising interest rates on new loans.

A positive rating action could be warranted if Encavis further improved the granularity of its power generation portfolio and strengthened EBITDA/cash interest coverage to above 4.0x on a sustained basis.

Long-term and short-term debt ratings

While Encavis has no outstanding senior unsecured capital market debt, senior unsecured debt is rated at the level of the issuer.

Contractually subordinated debt (convertible hybrid bond; ISIN: DE000A19NPE8) whose interest can be deferred under certain conditions is rated BB, two notches below the issuer rating.

In light of Encavis’ sustained robust liquidity and diversified exposure to external funding channels, i.e. from banks and capital markets at project level and from private (i.e. shareholder loans and Schuldschein) and public sources at group level, our short-term rating remains at S-2.

One or more key drivers for the credit rating action are considered ESG factors.

Stress testing & cash flow analysis
No stress testing was performed. Scope performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for this rating and rating outlook (Corporate Rating Methodology, published on 26 February 2020; Rating Methodology for European Renewable Energy Corporates, published on 17 January 2020) are available on https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each rating category, including definitions of default and recoveries can be viewed in the “Rating Definitions - Credit Ratings and Ancillary Services” published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how Environmental, Social or Governance factors (ESG factor) are incorporated into the rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rated entity and/or its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Sebastian Zank, Executive Director
Person responsible for approval of the rating: Philipp Wass, Executive Director
The ratings/outlooks were first released by Scope on 5 March 2018. The ratings/outlooks were last updated on 18 March 2019.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
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