Research Update: Spain-Based ENCE Energia y Celulosa Downgraded To 'BB-' On Slower-Than-Expected Recovery In Pulp Prices; Outlook Stable

Pulp prices have been lower than forecast throughout 2020, which affected financial performance at pulp and energy producer ENCE Energia y Celulosa S.A. We view the agreed sale of a 49% participation on ENCE's energy business and the disposal of its solar thermal power plant as credit positive. Despite this, credit metrics are likely to lag our previous forecasts because the recovery in pulp prices will be slower than expected and the U.S. dollar recently depreciated against the euro. We are therefore lowering our issuer credit rating on the company to 'BB-' from 'BB'. The stable outlook indicates that we expect credit metrics to improve in the next 12 months after the completion of the transactions in the energy business,

...- Pulp prices have been lower than forecast throughout 2020, which affected financial performance at pulp and energy producer ENCE Energia y Celulosa S.A. - We view the agreed sale of a 49% participation on ENCE's energy business and the disposal of its solar thermal power plant as credit positive. Despite this, credit metrics are likely to lag our previous forecasts because the recovery in pulp prices will be slower than expected and the U.S. dollar recently depreciated against the euro. - We are therefore lowering our issuer credit rating on the company to '##-' from '##'. - The stable outlook indicates that we expect credit metrics to improve in the next 12 months after the completion of the transactions in the energy business, combined with a gradual recovery in pulp prices. We expect funds from operations (FFO) to debt to be about 10% in 2020 and 16% in 2021....

Research Update