# S&P Adjusted Debt-to-EBITDA Analysis for Iberdrola SA (2022)

## Step 1: Identify the Relevant Industry

Iberdrola SA is a Spanish multinational electric utility company. Based on the company's operations and financial profile, it operates as a **Regulated Utility** with both regulated and unregulated power generation activities. The methodology should primarily follow the "Regulated Utilities" framework with consideration of the "Unregulated Power and Gas" sector for non-regulated portions.

Given the significant regulated utility operations (transmission, distribution) and renewable generation assets, the **Regulated Utilities** methodology is the primary framework.

## Step 2: Estimate Adjusted_Debt

### Components of Adjusted Debt (at 2022-01-01):

**Reported Financial Liabilities:**
- Noncurrent Financial Liabilities: €37,175,000,000
- Current Financial Liabilities: €21,297,000,000
- Total reported debt: €58,472,000,000

**Lease Adjustments:**
- Noncurrent Lease Liabilities: €2,253,000,000
- Current Lease Liabilities: €158,000,000
- Total leases: €2,411,000,000

**Hybrid/Perpetual Debt Instruments:**
- Noncurrent Instruments with Debt Characteristics: €525,000,000
- Current Instruments with Debt Characteristics: €100,000,000
- Total hybrid instruments: €625,000,000

**Pension Obligations:**
- Noncurrent Provisions for Employee Benefits: €1,592,000,000
- Current Provisions for Employee Benefits: €27,000,000
- Total pension-related: €1,619,000,000

**Derivative Financial Liabilities (mark-to-market adjustments - typically added):**
- Noncurrent: €1,673,000,000
- Current: €2,111,000,000
- Total derivatives: €3,784,000,000

**Less: Cash & Equivalents (eligible cash):**
- Cash and Cash Equivalents: €4,033,000,000

### Calculation of Adjusted_Debt:

```
Adjusted_Debt = (58,472 + 2,411 + 625 + 1,619 + 3,784) - 4,033
Adjusted_Debt = 66,911 - 4,033
Adjusted_Debt = €62,878 million = €62.878 billion
```

## Step 3: Estimate Adjusted_EBITDA

### Starting Point - Reported EBITDA:

From the financial data provided:
- "Beneficio Bruto De Explotacion Ebitda" (2021-01-01 - 2022-01-01): €12,006,000,000

### Adjustments to Reported EBITDA for 2022:

**1. Operating Lease Adjustment (per regulated utility methodology):**
- Annual lease expense should be normalized. Using the lease liabilities as proxy:
- Estimated annual lease cost (5-6% of lease liabilities): €2,411 × 5.5% = €132,605,000

**2. Pension Adjustments:**
- Current service costs and contributions are typically already in operating expenses
- Actuarial gains/losses should be added back if non-recurring
- Conservative adjustment: €0 (as ongoing pension costs are already reflected)

**3. Non-recurring/Non-operating Items Normalization:**
- "Other Gains Losses" (2021-01-01 - 2022-01-01): €995,000,000 (non-recurring gains - subtract)
- "Correccion Valorativa De Deudores Comerciales" (bad debt provision): €369,000,000 (add back as non-cash)

**4. Joint Venture and Associate Adjustments:**
- "Share Of Other Comprehensive Income Of Associates" (2021-01-01 - 2022-01-01): -€39,000,000
- Add back proportional EBITDA: €39,000,000

**5. Government Grants Applied:**
- "Subvenciones Aplicadas Y Otros Ingresos Diferidos": €282,000,000 (non-cash, add back)

### Calculation of Adjusted_EBITDA (2022 fiscal year ending 2023-01-01):

Using 2022-01-01 - 2023-01-01 data:
```
Reported EBITDA (2022-2023): €13,228,000,000

Adjustments:
+ Lease normalization: €132,605,000
+ Bad debt provisions (non-cash): €470,000,000
+ Associate equity adjustments: €146,000,000
+ Government grants deferred: €304,000,000
- Non-recurring other gains: €911,000,000
- Pension remeasurement gains (already in other comp income): €0

Adjusted_EBITDA = 13,228 + 133 + 470 + 146 + 304 - 911
Adjusted_EBITDA = €13,370 million = €13.370 billion
```

## Step 4: Calculate Adjusted_Debt / Adjusted_EBITDA Ratio

```
Ratio = Adjusted_Debt / Adjusted_EBITDA
Ratio = €62,878 million / €13,370 million
Ratio = 4.70
```

### Verification and Sanity Check:

- Iberdrola is a large regulated utility with significant capital intensity
- A leverage ratio of 4.70x is reasonable for a regulated utility in Europe
- The company has stable cash flows from regulated operations
- The ratio reflects the capital-intensive nature of utility infrastructure

<answer>4.70</answer>