European Infrastructure Finance Yearbook - Investing In Bonds ...

UTILITIES
Publication Date:
Nov. 12, 2007
Issuer Credit Rating:
A/Watch Neg/A-1
Primary Credit Analyst:
Ana Nogales,
Madrid,
(34) 91-788-7206
Secondary Credit Analyst:
Peter Kernan,
London,
(44) 20-7176-3618
42 ■ NOVEMBER 2007
ENEL SPA
Rationale
The ratings on Enel SpA remain on CreditWatch
with negative implications, where they were
placed on April 3, 2007, following the company’s
€40 billion joint debt-financed takeover bid with
Spanish construction firm Acciona S.A. for 100%
of Spanish utility Endesa S.A. (A/Watch Neg/A-1).
The continued CreditWatch listing reflects
Standard & Poor’s Ratings Services’ expectations
that Enel’s financial profile will further deteriorate
as a result of the tender offer for Endesa. The
offer was completed on Oct. 1, 2007, and Enel
now owns 67% of Endesa. In connection with
this acquisition, Enel and Acciona will sell certain
Enel and Endesa assets in Italy, France, Poland,
Turkey, and Spain to German utility E.ON AG
(A/Stable/A-1) in the first half of 2008 for an
expected €13 billion-
€14 billion.
We expect to resolve the CreditWatch status
once details about Enel’s business strategy and
capital structure are available.
The current ratings reflect Enel’s significant
position in the Italian power market, which is
sustained by its vertically integrated operations.
The acquisition of Endesa should enhance Enel’s
business profile, through increased size and
diversification. In addition, operating synergies
could be material. Enel’s ability to reap the
potential benefits, however, will depend on its
degree of control of Endesa and the functioning
of its partnership with Acciona. Although the
transaction will enhance Enel’s business profile, it
will lead to a material deterioration in the
company’s financial position, notwithstanding the
benefit of the asset sales to E.ON. Enel’s debtfinanced
investment in Endesa totals about
€28 billion (equity value). This compares with
net reported debt of €24.8 billion at Sept. 30,
2007, which already included the debt financing
of a 25% Endesa stake.
STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK
Enel’s acquisition earlier this year of about
€1.8 billion in Russian assets and its desire to
become an integrated energy player in the Russian
market will also weigh negatively on the
company’s credit quality, due to country and
industry risks, as well as to the financial impact.
The company’s public announcement that it has
now almost completed its M&A activity and that
it will focus on integrating all of its international
assets somewhat reduces acquisition-related risks.
Short-term credit factors
Enel’s short-term rating is ‘A-1’. At Sept. 30,
2007, the company had committed credit lines of
€5 billion, of which €2 billion had been drawn,
and uncommitted credit lines of €2.6 billion, of
which €0.9 billion had been drawn. The finance
documentation for these facilities does not include
material covenants. In addition, Enel had a €35
billion committed credit line to fully finance the
Endesa acquisition, which has now been reduced
to €23 billion after the June and September bond
issues and the results of the Endesa tender offer.
This credit line is split into three tranches with
different maturities: 1) one year, subject to a termout
option for a further 18 months, for a residual
amount of €2.5 billion; 2) three years, for a
residual amount of €12.3 billion; and 3) five
years, for a residual amount of €8.2 billion.
Consequently, short-term refinancing risk seems
modest. Given Enel’s size and market position,
and the successful placement of its $3.5 billion
bond issued in the U.S., access to the capital
markets and the ability to issue debt of an
appropriate tenor are not credit concerns, even
under current market conditions. Enel’s ultimate
debt profile, in terms of maturity and
composition, will depend upon the permanent
financing that it arranges to replace the
acquisition facility. ■