KELAG AG

The stable outlook reflects our expectation that KELAG will remain resilient throughout the economic shock caused by the COVID-19 pandemic. This is because 50% of the company's EBITDA comes from regulated activities and district heating, and its prudent risk management mitigates commodity price risk. We expect KELAG's FFO-to-debt ratio to be close to 35%, and remain above that level on average over the medium term as volume effects at the grid level cancel out over the next few years. We could lower our rating if KELAG's weighted average FFO-to-debt ratio falls below 35% without short-term recovery prospects. Although this is not our base case, it could result, for example, from a slower economic recovery than we currently expect, and a

...We expect KELAG to manage short-term financial fluctuations due to its proactive risk management and its credit quality to remain more dependent on medium-to-long-term trends. The economic crisis resulting from the COVID-19 pandemic could have short-term financial implications for KELAG but we expect these to be manageable. For example, lower volumes at power and gas networks could result in volume effects that the company would nonetheless recover through tariffs in later years. In addition, lower power prices and demand could affect the company's earnings, as open positions are closed at lower realized prices than initially expected. However, because KELAG hedges its exposure to commodity prices on a mid-term basis, we believe that the impact should be contained over 2020 and 2021. Moreover, KELAG is putting in place cost-cutting initiatives in 2020 and, in order to protect its credit metrics, could delay capital expenditure (capex) to mitigate a potential shortfall on operating cash...

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