Vattenfall AB

The positive outlook reflects the potential for a one-notch upgrade over the two next years should Vattenfall execute its planned investments. This should lead to a higher share of cash flow from the wind and regulated assets combined, along with a strong balance sheet. We see upgrade potential over the next two years should Vattenfall execute its ongoing investments without any significant cost overruns or delays. Should we believe that the company could sustain its financial risk profile, with FFO to debt above 25%, this could also lead to a one-notch upgrade. We could revise the outlook to stable if we believed that Vattenfall's financial risk profile was not sustainable, meaning that FFO to debt could return to the 20%-25%

...The recent decrease in reported debt stems from an exceptionally large inflow from margin calls in 2021. This was due to extremely volatile prices in 2021. Gas and power prices rose significantly, especially in the last quarter of 2021. Vattenfall therefore received SEK88 billion in margin calls in 2021, which is a huge amount compared with its reported debt of SEK126 billion. As a result, Vattenfall's S&P Global Ratings-adjusted FFO to debt increased to about 250% for the year, although excluding the margin-call effect, the ratio was about 30%-35%, which is still robust compared with our expectation for the rating. In our analysis, we assume that margin calls will be neutralized over time as Vattenfall takes delivery of the gas it has purchased. Gas prices continue to be very high and volatile in 2022, so the timing of the...

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