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

Rating action

Scope Ratings has assigned a BBB-/Stable first-time issuer rating to Italian utility company Green Network S.p.A. along with an S-2 short-term rating and a BBB- senior unsecured debt rating.

Rating rationale

Green Network’s business risk profile is supported by its coverage of a niche energy supply market (electricity and gas). Current developments in the Italian market, especially with regulated tariffs ending by 2022, could also benefit the company. Nevertheless, the business risk profile is constrained by its high churn rate, low diversification and low profitability.

The overall issuer rating is mainly supported by the financial risk profile, which is significantly stronger than the business risk profile. Despite volatility in credit metrics over the past few years, Green Network’s leverage (measured by Scope-adjusted debt/EBITDA) has been low and is expected to be around 2x in the future, which includes converted debt-like payables arising from the agreement with E-Distribuzione. Scope believes there is further potential for deleveraging, via positive expected discretionary cash flow and the collection of intergroup receivables, primarily from UK-based sister company Green Network UK plc. The overall issuer rating is also supported by the conservative financial policy, with no plans for M&A nor dividend distributions.

Outlook and rating-change drivers

The Stable Outlook for Green Network incorporates no further large acquisitions and the continued support of one notch awarded to the rating, reflecting Scope’s perception of management’s conservative financial policy. As a result, the Stable Outlook encompasses Scope’s view that indebtedness will remain low (with a leverage of below 2.5x) while the interest coverage will remain stable. It also incorporates Green Network’s niche position in Italy and the agency’s perception that the company’s EBITDA margin will improve to around 5% thanks to its strategic change.

A positive rating action could happen if Green Network improves its business risk profile, for example, through greater stability in cash flow generation and higher operating margin levels in the next couple of years.

The rating could come under pressure if Green Network’s leverage moves towards 3x. This could be due to debt-financed M&A, or dividends distributed at a level that is harmful to the financial risk profile. Higher cash outflow through intercompany loans to the UK business could also put the rating under pressure. A rating downgrade could be triggered following a removal of the rating uplift provided by financial policy.

Long-term debt and short-term ratings

All senior unsecured debt issued by Green Network is rated BBB-, in line with issuer rating.

Reflecting the solid short-term debt coverage (strong internal and external liquidity ratio) and access to external financing, Scope has assigned an S-2 short-term rating.

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 these ratings and rating outlooks (Corporate Rating Methodology, 26 February 2020 and European Utilities Rating Methodology, 18 March 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: Anne Grammatico, Associate Director
Person responsible for approval of the rating: Olaf Tölke, Managing Director
The ratings/outlooks were first released by Scope on 4 November 2020.

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
© 2020 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions 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. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.
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