Morningstar DBRS Downgrades Credit Ratings on Corporación Acciona Energías Renovables S.A. and Acciona Energía Financiación Filiales, S.A.

DBRS Ratings GmbH (Morningstar DBRS) downgraded both the Issuer Rating and the Short-Term Issuer Rating on Corporación Acciona Energías Renovables S.A. (Acciona Energía or the Company) to BBB and R-2 (middle), respectively, from BBB (high) and R-2 (high), respectively. Morningstar DBRS also downgraded its credit rating on Acciona Energía Financiación Filiales, S.A.'s existing Euro Medium Term Notes programme to BBB from BBB (high). The trends on all credit ratings remain Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit rating downgrades reflect the increasing financial leverage of the Company expected for the next three years in an environment of lower energy prices coupled with the ambitious growth plan Acciona Energía is developing for a few years now to increase the installed capacity. Cash flow-to-adjusted debt is expected to significantly decrease, standing below 15% in 2024 and below 20% in both 2025 and 2026, as a consequence of the rising debt to fund the high committed capital expenditures (capex) for 2024 while cash flow generation is impacted by softened energy prices. Morningstar DBRS notes that Acciona Energía is working on several measures to mitigate the financial leverage deterioration and protect the investment-grade credit rating. Among the main strategies, the Company has been able to partially adapt the growth plan expected for 2025 and 2026, and it aims to complete the divestiture of several asset during the next four years in order to strengthen the credit metrics and liquidity. However, Morningstar DBRS has some concerns related to the execution of the asset disposal plan related to timing and amount of proceeds in the near team considering weaker than expected electricity prices recently.

The Stable trend reflects the recurrent cash flow generated by the regulated assets and PPA/hedges contracts, the limited merchant exposure, the Company's ability to slowdown the growth plan in the medium term, and the active management of Acciona Energía, which is working on several strategies to control the rising debt, showing a strong commitment of to keep the investment-grade rating.

CREDIT RATING DRIVERS
Morningstar DBRS considers a positive credit rating action in the medium term to be unlikely. However, Morningstar DBRS could take a negative credit rating action as a consequence of (1) significant delays in the asset rotation which leads a higher level of debt; (2) considerable project delays and cost overruns associated with Acciona Energia's developments under construction; (3) heightened regulatory risk; or (4) a decline in credit metrics to below Morningstar DBRS' required levels for the current credit rating, for example with a cash flow-to-net debt below 15.0% and net debt-to-capital above 42.0% on a sustained basis and without the implementation of financial remedies.

EARNINGS OUTLOOK
Looking ahead, Morningstar DBRS expects Acciona Energía's revenues and EBITDA to slightly decrease in 2024 according to the lower energy price environment and the deliberate strategy to reduce the energy production during the first semester of the year to protect profitability. For 2025 and 2026, generation revenues are expected to grow above EUR 1.8 billion thanks to the increasing installed capacity and output, and also due to a recovery in energy prices comparing to 2024, with expected pool prices above EUR 65.0/MWh in Spain and above EUR 40.0MWh in the international market. EBITDA would continue benefiting from regulated activities although this contribution is expected to be below 20% by the end of 2026. In addition, Morningstar DBRS notes that the asset rotation strategy developed by the Company would significantly boost profits over the next four years to partially support the growth plan. However, Morningstar DBRS is aware of some execution risks in the divestment of energy assets.

FINANCIAL OUTLOOK
According to the lower cash flow generation and high level of capex for the next three years, Morningstar DBRS expects a higher level of debt, with a peak in 2024, that will put pressure over the credit metrics over the next years. Although Morningstar DBRS considers the asset rotation could significantly mitigate the rising debt, Morningstar DBRS also has some concerns about the quick execution of the strategy. Cash flow-to-adjusted debt is expected to remain below 15% in 2024 and then to improve towards above 17% levels for both 2025 and 2026. Adjusted debt-to-capital is expected to stand above 35% during the next three years.

CREDIT RATING RATIONALE
The Issuer Rating is supported by the Company's (1) stable cash flows from regulated generation assets located mainly in Spain; (2) long-term contracts for a moderate percentage of its nonregulated assets; (3) good geographic diversification; (4) the Company's strong commitment to investment grade, with an active management to mitigate the lower energy prices during the execution of the growth plan; and (5) strong operational expertise and a good track record in the development of power projects.

The Issuer Rating is constrained by the Company's (1) capex intensity and project development risk, (2) exposure of nonregulated generation to price volatility in the long term, (3) operational risk, (4) currency and interest risk, and (5) intense competition in nonregulated operations. The Stable trends incorporate Morningstar DBRS's view that, notwithstanding the expected large capex requirements, Acciona Energía´s credit metrics will remain supportive of a strong BBB Issuer Rating.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Environmental (E) Factors
Since the last credit rating action, the relevance or significance of the following Environmental Factor(s) changed. The Environmental factor Carbon and GHG Costs is no longer considered to have a relevant effect due to the impact on the credit metrics is expected to be residual.

There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) at https://dbrs.morningstar.com/research/427030.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of Acciona Energía, the BRA factors are considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of Acciona Energía, the FRA factors are considered in the order of importance contemplated in the methodology.

(C) Weighting of the BRA and the FRA
In the analysis of Acciona Energía, the BRA carries greater weight than the FRA.

Morningstar DBRS notes that this press release was amended on 12 August 2024 to incorporate details on the lead analyst and chair, the initial and last rating action date, the issuing office details, the disclosure detailing where information regarding Morningstar DBRS credit ratings can be found, and to correct some minor typographical errors.

Notes:
All figures are in euros unless otherwise noted.

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Companies in the Regulated Utility and Independent Power Producer Industries (27 June 2024), https://dbrs.morningstar.com/research/435127

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (15 April 2024), https://dbrs.morningstar.com/research/431186, which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following criteria has also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyses corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The primary sources of information used for these credit ratings include audited financial statements, financial results, management forecast, and presentations. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

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

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

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://dbrs.morningstar.com/research/436818.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Laura Gutierrez, Assistant Vice President
Rating Committee Chair: Anke Rindermann, Managing Director
Initial Rating Date: 26 August 2021
Last Rating Date: 26 July 2023

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81
Plantas 26 & 27 28046 Madrid, Spain
Tel. +34 (91) 903 6500

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259