# S&P Adjusted Debt-to-EBITDA Analysis for ENEL - SPA (FY 2022)

## Step 1: Identify the Relevant Industry

ENEL - SPA is primarily a **regulated utility company** operating in the electricity and gas sectors across multiple jurisdictions (Europe and Latin America). The company operates both regulated and unregulated activities, including:
- Electricity generation and distribution
- Gas distribution
- Renewable energy generation

**Applicable Methodology**: Primarily **Regulated Utilities** with some **Unregulated Power and Gas** components. The methodology focuses on regulated utility adjustments including treatment of leases, pensions, and other debt-like items.

---

## Step 2: Estimate Adjusted Debt

### 2.1 Identify Debt Components

From the balance sheet as of December 31, 2022:

**Current Borrowings:**
- Short-term borrowings: €13,306M
- Current portion of long-term borrowings: €4,031M
- **Total Current Debt: €17,337M**

**Non-Current Borrowings:**
- Long-term borrowings: €54,500M
- **Total Non-Current Debt: €54,500M**

**Total Reported Debt: €71,837M**

### 2.2 Assess Additional Debt-Like Items

**Hybrid Bonds/Equity Instruments:**
- Perpetual hybrid bonds (reported in equity): €5,567M at 2022-01-01
- Per S&P guidelines, hybrid bonds are typically 50% debt-like in nature for leverage calculations
- **Hybrid adjustment: €5,567M × 50% = €2,784M**

**Operating Leases:**
- The company reports substantial property, plant & equipment (€84,572M) and operates infrastructure assets globally
- S&P requires capitalization of operating leases not on balance sheet
- Estimated operating lease capitalization (typical for utilities of this scale): ~€2,000M (conservative estimate based on infrastructure operations)
- **Lease adjustment: €2,000M**

**Pension Obligations:**
- Non-current provisions for employee benefits: €2,724M
- Per S&P utility methodology, underfunded pension obligations should be added
- Assuming standard funding ratio, not fully capitalized: **€500M**

**Other Adjustments:**
- No material guarantees or other off-balance-sheet obligations identified
- Deferred tax liabilities not adjusted (already in GAAP liabilities)

### 2.3 Calculate Eligible Cash

**Cash and Cash Equivalents (Dec 31, 2022):**
- Cash and cash equivalents: €8,858M
- Short-term investments classified as cash equivalents: €88M
- **Total Cash: €8,946M**

**Eligible Cash Deduction:**
- S&P typically allows deduction of cash balances for utility leverage calculations
- **Eligible cash: €8,946M**

### 2.4 Adjusted Debt Calculation

```
Adjusted_Debt = Reported_Debt + Hybrid_Adjustment + Lease_Adjustment + Pension_Adjustment - Eligible_Cash

Adjusted_Debt = €71,837M + €2,784M + €2,000M + €500M - €8,946M
Adjusted_Debt = €68,175M
```

---

## Step 3: Estimate Adjusted EBITDA

### 3.1 Reconstruct EBITDA from Income Statement (2022)

**Starting with Operating Profit:**
- Profit/Loss from Operating Activities: €11,193M

**Add Back Depreciation, Amortization & Impairment:**
- Depreciation, Amortisation & Impairment Loss: €8,809M

**EBITDA (Reported):**
```
EBITDA = Operating Profit + D&A + Impairment
EBITDA = €11,193M + €8,809M = €20,002M
```

### 3.2 Identify Normalization Adjustments

**Non-Recurring Items:**

1. **Results from Commodity Contracts (hedging gains):**
   - Net Results From Commodity Contracts: €2,365M (non-recurring gain)
   - Adjustment: **-€2,365M**

2. **Impairment Loss on Trade Receivables:**
   - Trade receivables impairment: €1,288M
   - This is already in D&A line; verify for double-counting: NO (separate line item)
   - Adjustment: **+€1,288M** (non-recurring loss)

3. **Loss from Discontinued Operations:**
   - Profit/Loss from Discontinued Operations: -€2,298M
   - This should be normalized out as non-recurring
   - Add back (loss reduces reported earnings): **+€2,298M**

4. **Other Non-Recurring Items:**
   - Gains/losses on disposal of non-current assets: -€355M (included in operating expense)
   - This is normalized in operating metrics, already reflected
   - Adjustment: **+€355M** (non-recurring gain)

5. **Pension Adjustments:**
   - Current year pension costs captured in employee benefits
   - No special adjustment needed if already in EBITDA
   - Adjustment: **€0M**

6. **Lease Capitalization Adjustment:**
   - For lease capitalization, add back reported lease expense to EBITDA
   - Estimated: **+€100M** (conservative for lease operating expense)

### 3.3 Adjusted EBITDA Calculation

```
Adjusted_EBITDA = Reported_EBITDA + Normalization_Adjustments

Components:
- Reported EBITDA:                           €20,002M
- Less: Commodity contracts gains:            -€2,365M
- Add: Trade receivables impairment:          +€1,288M
- Add: Discontinued operations loss:          +€2,298M
- Add: Gains on disposal:                     +€355M
- Add: Lease expense capitalization:          +€100M

Adjusted_EBITDA = €20,002M - €2,365M + €1,288M + €2,298M + €355M + €100M
Adjusted_EBITDA = €21,678M
```

---

## Step 4: Calculate Adjusted Debt-to-EBITDA Ratio

```
Adjusted_Debt / Adjusted_EBITDA = €68,175M / €21,678M = 3.145x
```

**Rounded to two decimal places: 3.15x**

---

## Verification of Calculation

**Reasonableness Check:**
- Reported Debt: €71,837M
- Reported EBITDA approximation: €20,002M ≈ 3.59x (before adjustments)
- Adjusted ratio of 3.15x is reasonable given:
  - Reduction in debt from cash deduction
  - Increase in EBITDA from normalization adjustments
  - Increase in adjusted debt from hybrid bonds and leases

The ratio falls within typical ranges for large, integrated utilities with strong operational performance.

---

<answer>3.15</answer>