Let’s proceed step-by-step. --- **Step 1: Identify the relevant industry for ENEL - SPA** ENEL is primarily an integrated electricity and gas utility, with significant regulated networks and unregulated power generation and retail. Given the business description and data provided, it fits within the **Regulated Utilities** industry, though a portion of its operations (generation, retail) also overlaps with **Unregulated Power and Gas**. For S&P’s methodology, if the majority of cash flows are from regulated operations, the Regulated Utilities framework applies. ENEL’s revenues are largely from regulated or quasi-regulated electricity and gas, so I will treat it as a **Regulated Utility** with adjustments for unregulated portions as needed. --- **Step 2: Estimate 2021 Adjusted EBITDA** Start with **Revenue** and **Operating Expense**: - 2021 Revenue: €85,719 million - 2021 Operating expense: €80,691 million Reconstruct EBITDA: Operating profit = Revenue - Operating expense = 85,719m - 80,691m = €5,028 million Add back Depreciation, Amortization & Impairment (from income statement): Depreciation/Amortization/Impairment 2021 = €8,507 million Reported EBITDA = Operating profit + D&A = 5,028m + 8,507m = €13,535 million **Adjustments for S&P EBITDA**: - Remove non-recurring items: Not specified other than impairment on trade receivables (already in D&A line). - Add back impairment loss on trade receivables? (Already included in operating expense.) - Pension adjustments: not enough data, skip. - Joint venture proportional EBITDA: Profit from associates/JVs = €571 million. Operating profit likely excludes this; we should add proportional EBITDA (simplify to adding share of profit here as proxy). Adjusted EBITDA 2021 ≈ 13,535m + 571m = **€14,106 million**. --- **Step 3: Estimate 2021 FFO** FFO = Adjusted EBITDA – cash interest – cash taxes From cash flow statement: - Finance costs paid = €4,277 million (proxy for cash interest) - Income taxes paid = €1,846 million FFO = 14,106m – 4,277m – 1,846m = **€7,983 million** --- **Step 4: Estimate 2021 Adjusted Debt** Reported Debt = Longterm borrowings + Short-term borrowings + Current portion of long-term borrowings = 54,500m + 13,306m + 4,031m = €71,837 million Add: - Lease liabilities: Not separately disclosed; if material, would add. Assume embedded in borrowings. - Pension deficit: Not disclosed; skip. - Hybrid bonds (equity credit per S&P): 50% of perpetual hybrid bonds treated as debt. Hybrid bonds in equity 2021: €5,567 million → add 50% = €2,783.5 million. Adjusted gross debt = 71,837m + 2,784m ≈ €74,621 million Less eligible cash: Cash and equivalents = €8,858 million (but assume only part eligible, use full amount as proxy). Adjusted debt = 74,621m – 8,858m = **€65,763 million** --- **Step 5: 2021 Debt / EBITDA** = 65,763 / 14,106 ≈ **4.66x** --- **Step 6: 2021 FFO / Debt** = 7,983 / 65,763 ≈ **0.121 (12.1%)** --- **Step 7: Estimate 2022 Adjusted EBITDA** Operating profit 2022 = Revenue €140,517m – OpEx €131,689m = €8,828 million Add D&A €7,447 million → Reported EBITDA = 8,828 + 7,447 = 16,275 million Add back JV profit: €4 million (negligible) Adjusted EBITDA ≈ €16,275 million --- **Step 8: Estimate 2022 FFO** Cash interest paid: €5,016 million Cash taxes paid: €1,934 million FFO = 16,275 – 5,016 – 1,934 = **€9,325 million** --- **Step 9: Estimate 2022 Adjusted Debt** Reported debt = Longterm €68,191m + Short-term €18,392m + Current portion €2,835m = €89,418 million Add 50% hybrids €5,567m → €2,783.5m Adjusted gross = 89,418 + 2,784 ≈ €92,202 million Less cash €11,041m → Adjusted debt = 92,202 – 11,041 = **€81,161 million** --- **Step 10: 2022 Debt / EBITDA** = 81,161 / 16,275 ≈ **4.99x** --- **Step 11: 2022 FFO / Debt** = 9,325 / 81,161 ≈ **0.115 (11.5%)** --- **Step 12: Credit trend classification** **Signal 1 (Leverage):** Change = 4.99 – 4.66 = +0.33x → ≥ +0.2x → **Deteriorating** **Signal 2 (Coverage):** Change = 0.115 – 0.121 = –0.006 → between –0.03 and +0.03 → **Stable** Signal conflict: One says Deteriorating, other says Stable → Result = Deteriorating (non-stable wins). --- Deteriorating