Nordic Credit Rating (NCR) said today that it had assigned a 'BBB+' long-term issuer rating to Norway-based regulated electricity distribution system owner and operator Fredrikstad Energi AS. The outlook is stable. At the same time NCR assigned an 'N2' short-term issuer rating and a 'BBB+' senior unsecured issue rating.
Rating rationale
The long-term rating reflects a strong and regulatorily stable operating environment and Fredrikstad Energi's distribution monopoly in regions with strong fundamentals. The rating is underpinned by the company's consistent performance and strong cost efficiency in comparison with its regional peers. The company is owned directly by Fredrikstad municipality and indirectly by Oslo municipality, which we regard as a credit strength.
The rating is constrained by Fredrikstad Energi's financial risk profile; the company has notably weak credit metrics in comparison with those of its closest peers. We also view the company's concentrated debt maturity profile as a rating weakness, even though its term loans carry options to extend. However, the regulatory framework offers protection against interest rate increases and cost inflation, albeit with a delay, which we believe offsets some risk.
Stable outlook
The outlook is stable, reflecting our expectations that Fredrikstad Energi's current financial risk profile will remain in line with our forecast and that the company will proactively refinance its upcoming maturities. It further reflects our expectations that the company's distribution grid will remain its core business and that costs will remain stable. We expect the company to continue to invest in its distribution grid and increase efficiency without compromising its financial risk profile.
We could raise the rating to reflect reduced leverage (NCR-adjusted funds from operations [FFO]/net debt above 15% and NCR-adjusted EBITDA/net interest above 5.0x over a protracted period), or an improved debt maturity schedule and compliance with policy targets.
We could lower the rating to reflect sharp cost increases in an individual year, resulting in a covenant breach, or reduced debt servicing capabilities (NCR-adjusted FFO/net debt below 5% and NCR-adjusted EBITDA/net interest below 2.0x over a protracted period). We could also lower the rating to reflect a change in ownership or business risk profile, resulting in a lower proportion of earnings and revenues from the distribution grid.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | BBB+ |
| Outlook: | Stable |
| Short-term issuer credit rating: | N2 |
| Senior unsecured issue rating: | BBB+ |
Contacts:
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 8 May 2023, NCR's Rating Principles published on 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report.