Tekniska verken i Linkoping AB

The stable outlook on TvAB reflects our view that the company's fully regulated electricity distribution business and stable district heating operations will likely continue to support cash flow. We expect TvAB will maintain S&P Global Ratings-adjusted FFO to debt above 45% in the next couple of years, well above the 35% downgrade threshold for the ratings. Low free operating cash flow (FOCF) is constraining the financial risk profile, although we do not expect extra shareholder distributions to continue beyond 2020. We also expect the capex program to decrease after peaking in 2022. We could lower our ratings on TvAB if the company's financial performance and credit metrics fell materially short of our forecasts and thresholds for the ratings. This could

...S&P Global Ratings expects credit ratios to weaken slightly in 2021-2024, but headroom nevertheless to remain high. Specifically, we expect FFO to debt of 40%-45% in 2021-2024 compared with 49% in 2020. This is well above our downside rating threshold of 35%. Cash flow is supported by stable district heating and electricity distribution operations representing represent a high share of EBITDA, typically at 70%-75%. TvAB also benefits from its diversified operations, with revenue streams from broadband, water and sewage, waste handling, all with fixed contracted pricing that has a stabilizing effect on earnings. On top of this, the company has revenue from electricity generation that stems from hydro and wind, but also electricity generation in its district heating operations. All electricity generation is exposed to merchant pricing and volatility. The capital expenditure (capex) program, which will peak in 2021-2022, is not covered by operational cash flow (see chart), resulting in increasing...

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