REN-Redes Energeticas Nacionais SGPS S.A.

The stable outlook on REN indicates our view that the company's adjusted funds from operations (FFO) to debt will continue to strengthen moderately, averaging about 13% over 2019-2021, thanks to positive free cash flow after capex and dividends and contributions from recently acquired assets. Our stable outlook reflects our expectation that REN will keep leverage under control, with adjusted debt to EBITDA below 6.5x, and no material deviation from the current regulations for gas transmission and distribution and electricity transmission in Portugal. We could lower the rating if REN failed to maintain adjusted FFO to debt above 12% or if adjusted debt to EBITDA were to increase above 6.5x. This could result from lower profitability than we expect, more aggressive

...REN-Redes Energeticas Nacionais SGPS S.A. (REN) is the monopoly gas and electricity transmission operator and the leading gas distribution operator in Portugal. REN's assets are regulated under long-term monopoly contracts with the Portuguese government until 2057 for electricity and 2046 for gas. REN is the second-largest gas distribution operator in Portugal after Galp Gas Natural Distribuitao, with a license expiring in December 2047. Well-established and supportive domestic regulatory framework, with some cash volatility stemming from the annual update of the RoR. The regulatory framework for electricity transmission in Portugal is now in its eighth three-year period, having started in January 2018 and ending in December 2020, with a RoR of 5.0% as of June 30, 2019. The regulatory framework for gas operations in Portugal is in its fourth period, with the fifth period starting in January 2020. Regulatory periods from 2019 last four years, whereas previously they were three years. As...

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