I'll work through this step-by-step for ELECTRICITE DE FRANCE (EDF). ## Step 1: Identify the Relevant Industry EDF is primarily a **regulated utility** with significant electricity generation (including nuclear), distribution, and supply activities. It's France's national electricity utility, operating under comprehensive regulation. Based on the S&P methodology provided, EDF falls under the **Regulated Utilities** sector, with elements of **Unregulated Power And Gas** given its merchant generation and supply activities. Given EDF's structure - predominantly state-owned, operating under French public electricity distribution concessions, with nuclear generation subject to regulated tariffs - I'll apply the **Regulated Utilities** methodology as the primary framework, with awareness that EDF has significant unregulated/merchant exposure. ## Step 2: Estimate Adjusted_Debt ### Baseline Components: **Reported Debt:** From the balance sheet, I need to identify debt items: - "Other Noncurrent Financial Liabilities" 2023-01-01: €71,058,000,000 - "Other Current Financial Liabilities" 2023-01-01: €71,844,000,000 These appear to be the main debt categories. Let me also check for other items. Looking at the liability structure more carefully: - "Special French Public Electricity Distribution Concession Liabilities": €49,459,000,000 (2023-01-01) - this is concession-related, likely debt-like - "Other Noncurrent Financial Liabilities": €71,058,000,000 - "Other Current Financial Liabilities": €71,844,000,000 From cash flow statement: - "Proceeds From Borrowings Classified As Financing Activities" 2022: €34,165,000,000 - "Repayments Of Borrowings Classified As Financing Activities" 2022: €5,876,000,000 **Total Reported Debt-like items at year-end 2022 (2023-01-01):** - Other Noncurrent Financial Liabilities: €71,058,000,000 - Other Current Financial Liabilities: €71,844,000,000 - Special French Public Electricity Distribution Concession Liabilities: €49,459,000,000 However, the concession liabilities may have both debt and non-debt components. For S&P purposes, we typically include financial debt. Let me use a more conservative approach for **reported debt**: - Noncurrent financial liabilities: €71,058,000,000 - Current financial liabilities: €71,844,000,000 - **Total reported debt: €142,902,000,000** **Pension Deficit:** From "Noncurrent Provisions For Employee Benefits": €16,231,000,000 (2023-01-01) Less any plan assets... we don't have separate pension plan asset data, so I'll use this as a proxy for pension obligations. However, this includes both funded and unfunded obligations. Looking at the equity section and notes, EDF has significant nuclear decommissioning and employee benefit provisions. The "Noncurrent Provisions For Employee Benefits" of €16,231,000,000 likely includes pension deficits. For S&P methodology, we typically add pension deficit (funded status). Without more detail, I'll estimate pension deficit as a portion. Given EDF's structure, let me use the full amount as a conservative proxy, but this may overstate. Actually, for regulated utilities, S&P is often more lenient if costs are recoverable. Actually, re-reading the methodology: for regulated utilities, we don't typically make all standard adjustments. Let me focus on what's clearly debt-like. **Nuclear Decommissioning and Back-end Provisions:** "Provisions Related To Nuclear Generation Back End Of The Nuclear Cycle Plant Decommissioning And Last Cores": €56,021,000,000 (2023-01-01) These are nuclear decommissioning provisions. S&P typically views these as debt-like obligations, especially if not fully funded. **Leases:** Not explicitly broken out in the data. IFRS 16 would have capitalized leases. Looking at the balance sheet, leases may be embedded in other items. **Hybrid Debt:** From cash flows: "Proceeds From Issue Of Subordinated Liabilities And Convertible Instruments" 2022: €994,000,000 "Payments To Holders Of Perpetual Subordinated Bonds In Cfs": €606,000,000 From equity changes: "Issuance And Redemption Of Perpetual Subordinated Bonds And Convertible Instruments" shows activity. These are hybrid instruments. Looking at equity: perpetual subordinated bonds are treated as 50% equity, 50% debt by S&P typically, or based on terms. From the cash flow and equity statements, there are perpetual subordinated bonds. The net issuance in 2022 was negative (redemption). Outstanding amount unclear. Let me use a simplified but robust approach: **Adjusted Debt calculation:** Reported financial debt (2022 year-end, i.e., 2023-01-01): - Noncurrent financial liabilities: €71,058,000,000 - Current financial liabilities: €71,844,000,000 - **Subtotal: €142,902,000,000** Add: Nuclear decommissioning/back-end provisions (debt-like): €56,021,000,000 Add: Other noncurrent provisions (debt-like portion): €4,671,000,000 (other decommissioning) Add: Employee benefits provision (pension-like): €16,231,000,000 Less: Cash and cash equivalents: €10,948,000,000 However, for regulated utilities, S&P may not fully add provisions if costs are recoverable through regulated tariffs. EDF's nuclear provisions are largely regulated/recoverable. Let me be more nuanced. For **Adjusted Debt** for a regulated utility: Base debt: €142,902,000,000 (financial liabilities) + Nuclear provisions (partially debt-like, but largely regulated/recoverable): I'll include 50% as conservative = €28,010,500,000 + Pension/employee benefits: €16,231,000,000 (but may be recoverable) - Cash: €10,948,000,000 Actually, let me re-examine. The S&P methodology for regulated utilities mentions: - "We deconsolidate securitized debt (and associated revenue and expense) that has been accorded specialized recovery provisions" - Seasonal working capital adjustments for gas utilities For EDF, the nuclear provisions and concession liabilities are specific regulatory features. Let me use a cleaner approach based on what's clearly debt: **Reported Debt at 2022 year-end (2023-01-01 balance sheet date):** - Other Noncurrent Financial Liabilities: €71,058,000,000 - Other Current Financial Liabilities: €71,844,000,000 - **Total: €142,902,000,000** Add: Special French Public Electricity Distribution Concession Liabilities (debt portion): This is complex. These are liabilities related to concession assets. S&P might treat these as debt-like. Let's include: €49,459,000,000 Less: Cash and equivalents: €10,948,000,000 **Preliminary Adjusted Debt: €181,413,000,000** But this seems high. Let me check if concession liabilities are already in financial liabilities or separate. They're listed separately, so likely not in "Other Financial Liabilities." Actually, looking more carefully at the balance sheet structure: - Noncurrent Liabilities total: €203,941,000,000 - Provisions: €76,923,000,000 - Special concession liabilities: €49,459,000,000 - Other noncurrent financial liabilities: €71,058,000,000 - Other noncurrent liabilities: €4,968,000,000 - Deferred tax: €1,533,000,000 - Current Liabilities total: €137,542,000,000 (excluding held for sale) - Current provisions: €7,943,000,000 - Trade payables: €23,284,000,000 - Other current financial liabilities: €71,844,000,000 - Current tax: €967,000,000 - Other current liabilities: €33,504,000,000 The "Other Current Financial Liabilities" of €71,844,000,000 seems very high. This likely includes derivative liabilities and trading positions given EDF's energy trading activities. For S&P adjusted debt, we typically want to exclude trading-related liabilities that are pass-through or matched by assets. However, without detailed breakdown, let me use reported financial debt and make reasonable adjustments. **Final Adjusted Debt approach:** Reported gross debt (financial liabilities): €71,058M + €71,844M = €142,902M Less: Cash: €10,948M Net reported debt: €131,954M Add: Nuclear and employee benefit provisions (debt-like, partially): Given EDF's regulated nature, these are largely recoverable. But S&P still often includes a portion. Let me add 50% of (€56,021M + €16,231M + €4,671M) = €38,461.5M Add: Concession liabilities (debt-like): €49,459M (but these may have asset offsets) This is getting complex. Let me use a more standard approach: **Adjusted Debt = Financial debt + 50% of hybrid equity - cash + pension deficit + other debt-like items** From the equity statement, there are perpetual subordinated bonds. The equity shows "Issuance And Redemption Of Perpetual Subordinated Bonds And Convertible Instruments" with negative €1,025M in 2022, suggesting net redemption. The balance outstanding is unclear. Let me use a simplified, conservative approach: Adjusted Debt = (Other Noncurrent Financial Liabilities + Other Current Financial Liabilities) - Cash + Nuclear decommissioning provision (debt-like portion) + Employee benefits (debt-like) = €71,058M + €71,844M - €10,948M + €56,021M × 0.5 + €16,231M × 0.5 = €142,902M - €10,948M + €28,010.5M + €8,115.5M = €168,080M Or approximately **€168,000,000,000** Actually, I realize I should check the 2022-01-01 balances too for averaging, but S&P typically uses year-end or average. Let me use year-end 2022 (2023-01-01). Let me reconsider: for regulated utilities with cost-of-service regulation, many provisions are recoverable and thus less debt-like. However, nuclear decommissioning is often viewed as debt-like due to long-term nature. I'll use: **Adjusted Debt = €155,000,000,000** as a reasonable estimate, incorporating financial debt less cash plus a portion of nuclear/employee obligations. Actually, let me be more precise. Looking at comparable S&P analyses for EDF, they typically adjust for: - Nuclear decommissioning and back-end provisions - Employee benefits - Less cash Let me recalculate with clearer logic: Gross financial debt at 2022 year-end: €142,902M Less cash: €10,948M = €131,954M net financial debt Add: 100% of nuclear back-end/decommissioning provisions (these are true debt-like obligations): €56,021M Add: 50% of employee benefits (pension-like): €8,116M (50% of €16,231M) Less: 50% of concession liabilities (these are matched by concession assets, so partially offset): not clear Actually, for S&P, concession liabilities are often treated as operating liabilities if matched by concession assets. Let me use a cleaner final number: **Adjusted Debt = €131,954M + €56,021M + €8,116M = €196,091M** This seems too high. Let me check if nuclear provisions are already included in debt... No, they're in "Provisions." Hmm, but looking at EDF's actual credit rating, S&P historically treats nuclear provisions as debt-like. Let me use **Adjusted Debt = €180,000,000,000** as a rounded but reasonable estimate. Actually, I want to be more careful. Let me look at what S&P typically does for EDF specifically. EDF is a known entity. S&P's adjusted debt for EDF typically includes: - Reported debt - Nuclear decommissioning and back-end provisions (less any dedicated assets) - Less cash Without dedicated nuclear fund assets shown separately, I'll use full provisions. **Revised Adjusted Debt:** Financial debt: €142,902M + Nuclear provisions: €56,021M + Other decommissioning: €4,671M + Employee benefits (pension-like): €16,231M - Cash: €10,948M = €208,877M This is very high. But note that employee benefits and nuclear provisions may be partially funded or recoverable. For practical purposes, and considering EDF's regulated/recoverable cost structure, I'll use: **Adjusted Debt = €165,000,000,000** Let me verify with another approach. The total liabilities are €341,520M (€388,132M assets - €46,612M equity). Debt-like items include financial liabilities, provisions, concession liabilities. Actually, let me just use a straightforward calculation: **Adjusted Debt = (Other Noncurrent Financial Liabilities + Other Current Financial Liabilities + Special French Public Electricity Distribution Concession Liabilities) - Cash and Cash Equivalents + (Provisions Related To Nuclear Generation + Other Provisions Including Other Provisions For Decommissionning + Noncurrent Provisions For Employee Benefits) × 50%** = (71,058 + 71,844 + 49,459) - 10,948 + (56,021 + 4,671 + 16,231) × 0.5 = 192,361 - 10,948 + 38,461.5 = 219,874.5 This is too high. The concession liabilities shouldn't all be added if they're operating liabilities. Let me try: **Adjusted Debt = Financial debt - cash + 50% of total provisions** = 142,902 - 10,948 + 0.5 × (76,923 + 7,943 + 4,671 + 56,021... wait there's overlap) Total provisions: Noncurrent €76,923M + Current €7,943M = €84,866M But this includes nuclear €56,021M + employee €16,231M + other €4,671M + current €7,943M = €84,866M 50% of provisions: €42,433M Adjusted Debt = 142,902 - 10,948 + 42,433 = €174,387M I'll use **€175,000,000,000** or more precisely **€174,387,000,000** ## Step 3: Estimate Adjusted_EBITDA From the income statement, I need to reconstruct EBITDA. **Operating Profit Before Depreciation And Amortisation** (2022): **-€4,986,000,000** This is essentially EBITDA from operations, but negative for 2022. However, S&P adjusts this. Let me verify: - Revenue: €143,476M - Expense Fuel Energy And Transmission Charges: €121,010M - Other External Services: €9,420M - Employee Benefits: €15,236M - Tax Expense Other Than Income Tax: €3,163M - Other Operating Income And Expenses Included In Ebe: €367M EBITDA = Revenue - operating expenses (before D&A) = 143,476 - 121,010 - 9,420 - 15,236 - 3,163 + 367? Actually, "Operating Profit Before Depreciation And Amortisation" is given as **-€4,986M** for 2022. This is the reported EBITDA. But S&P makes adjustments. The methodology says for regulated utilities: - "We do not adjust GAAP earnings or balance-sheet figures to remove the effects of regulatory accounting" - Focus on "economics and actual cash flow generation" For EDF, 2022 was an extraordinary year due to: - Energy price volatility - Government-imposed tariff caps (ARENH mechanism in France) - Net changes in fair value on derivatives: -€849M S&P would typically: 1. Add back non-recurring items 2. Normalize for extraordinary items 3. Adjust for derivative fair value changes if not reflective of underlying economics From the facts: - "Net Changes In Fair Value On Energy And Commodity Derivatives Excluding Trading Activities": -€849M (2022) - "Other Income And Expenses Excluded From Ebe": €687M (2022) - these are excluded from EBITDA already - "Impairment Loss Reversal": €1,762M (2022) - this is below EBITDA line Wait, let me check: "Operating Profit Before Depreciation And Amortisation" of -€4,986M is before: - Depreciation And Amortisation: €11,079M - Impairment: -€1,762M (reversal, so positive) - Other Income/Expenses excluded from EBE: €687M So Operating Profit (Profit Loss From Operating Activities) = -4,986 - 11,079 + 1,762 + 687 = -€13,616M? But reported is -€19,363M. Let me check... Actually "Profit Loss From Operating Activities" is -€19,363M for 2022. Let me recalculate: -4,986 (EBITDA) - 11,079 (D&A) + 1,762 (impairment reversal) + 687 (other) = -13,616M. But this doesn't match -19,363M. Hmm, there may be other items. Let me check: "Other Operating Income And Expenses Included In Ebe" of €367M is included in the -4,986M. Actually, looking more carefully, the -4,986M "Operating Profit Before Depreciation And Amortisation" might already include some items. Let me use the given EBITDA and adjust: **Base EBITDA (reported): -€4,986M** S&P adjustments for 2022: 1. **Non-recurring/exceptional items**: 2022 had significant government tariff interventions. The French government imposed price caps on electricity tariffs. EDF had to sell electricity at below-market prices through the ARENH mechanism and tariff shield. Looking at the facts, "Other Income And Expenses Excluded From Ebe" of €687M in 2022 - these are likely non-recurring or exceptional items excluded from EBITDA. 2. **Fair value changes on derivatives**: -€849M - these are mark-to-market and often excluded by S&P if not trading-related. 3. **Impairment reversals**: €1,762M - these are below EBITDA line but if we want "adjusted" EBITDA, we might consider if these reflect non-cash normalization. Actually, for EBITDA, impairments are below the line. EBITDA is already before impairments. Let me think about what S&P would do for EDF in 2022: - The negative EBITDA is due to the tariff shield and energy crisis - S&P might normalize for regulatory disallowances or one-time effects - However, 2022 was genuinely a bad year for EDF's economics Looking at 2021 for comparison: EBITDA was €18,005M. For S&P rating purposes, they often use "adjusted" EBITDA that normalizes for: - Non-recurring items - Regulatory lag effects - Derivative mark-to-market (if not economic) Given EDF's 2022 was severely impacted by: - Forced sales of electricity at €46/MWh under ARENH while market prices were €200-300/MWh - Government compensation mechanisms that were delayed S&P might make significant adjustments. But I need to work with reported data. Let me use reported EBITDA and make reasonable adjustments: **Adjusted EBITDA = Reported EBITDA + adjustments** Reported EBITDA (Operating Profit Before D&A): -€4,986M Add back: - Net changes in fair value on derivatives (non-cash, non-trading): €849M (was negative, so add back the loss) - Portion of "Other Income And Expenses Excluded From Ebe" if non-recurring: need to assess Actually, let me look at this differently. The "Other Income And Expenses Excluded From Ebe" of €687M in 2022 - "EBE" is "Excédent Brut d'Exploitation" = EBITDA in French. So these are items excluded from EBITDA. For S&P, we want a comprehensive EBITDA. Should we add these back? They're excluded from EBITDA, so to get total operating profitability, we might consider them. But S&P typically wants sustainable EBITDA. If these are non-recurring gains, we might exclude them. Looking at 2021: "Other Income And Expenses Excluded From Ebe" was €1,123M. In 2022 it was €687M. These seem to be recurring items (maybe equity income or other). Let me focus on clearer adjustments: 1. **Derivative fair value losses**: -€849M - add back as non-cash/non-economic 2. **Regulatory adjustments**: The French tariff shield caused massive losses. S&P might estimate a "normalized" EBITDA assuming cost recovery. Actually, for 2022, EDF's results were severely distorted. Let me check if there's a better approach. Looking at cash flow: "Net Cash Flow From Operations Before Net Financial Expenses Disbursed And Income Taxes Paid Refund" was -€5,140M in 2022. This is roughly: EBITDA - working capital changes. Working capital change was -€8,301M (negative means cash outflow, so EBITDA was roughly -5,140 + 8,301 = €3,161M? No, that's not right either. Actually: "Increase Decrease In Working Capital" of -€8,301M means working capital increased (cash outflow). So: Cash from ops before interest and tax = EBITDA + working capital change + other adjustments = -5,140M If working capital was -8,301M (outflow), then EBITDA + other adjustments = -5,140 + 8,301 = €3,161M? But reported EBITDA is -4,986M. There's a big gap. Other adjustments include: dividends received €590M, gains/losses on disposal -€143M, income tax expense -€3,926M, undistributed profits of associates €759M... This is getting messy. Let me use a different approach. For EDF 2022, let me estimate "economic" EBITDA by looking at the components: Revenue: €143,476M - Fuel/energy/transmission: €121,010M - Other external services: €9,420M - Employee benefits: €15,236M - Tax other than income: €3,163M + Other operating income/expenses in EBE: €367M = €143,476 - €121,010 - €9,420 - €15,236 - €3,163 + €367 = -€4,986M This matches the reported EBITDA. For S&P adjustment, the key issue is whether revenue reflects true economics. In 2022, EDF was forced to sell electricity at below-market prices due to the tariff shield. The French government compensated EDF through various mechanisms, but these may not be fully in revenue. Looking at 2021 vs 2022: - Revenue went from €84,461M to €143,476M (+70%) - Fuel costs went from €44,299M to €121,010M (+173%) The revenue increase didn't match cost increase due to tariff caps. For S&P purposes, they might calculate "adjusted" revenue and EBITDA to reflect regulatory economics. However, I need to work with available data. Let me make reasonable S&P-style adjustments: **Adjusted EBITDA for 2022:** Base reported EBITDA: -€4,986M Add back non-cash/non-recurring items: 1. Net changes in fair value on derivatives (non-cash): €849M 2. Portion of impairment reversal (if included below EBITDA - but it's already below) Actually, impairment is below EBITDA line, so doesn't affect EBITDA. Let me consider: S&P for regulated utilities often uses "regulatory EBITDA" or adjusts for timing differences in cost recovery. Given the severe distortion in 2022, S&P might use a multi-year average or normalize for the tariff effects. But for this exercise, let me use reported data with standard adjustments: **Adjusted EBITDA = -4,986 + 849 (derivatives) + other normalizations** For "other normalizations," let me consider if "Other Income And Expenses Excluded From Ebe" should be included. These were €687M in 2022 and €1,123M in 2021. If these represent items like equity income or gains that are part of operations but excluded from French EBITDA definition, S&P might include them. Adding €687M: Adjusted EBITDA = -4,986 + 849 + 687 = -€3,450M Still negative. Actually, looking at 2021: EBITDA was €18,005M with derivatives -€215M and other excluded items €1,123M. If we similarly adjust 2021: 18,005 + 215 + 1,123 = €19,343M. The 2022 collapse from ~€19B to negative is due to the energy crisis and tariff shield. For S&P rating purposes in 2022, they might have used forward-looking or normalized EBITDA given the temporary nature of some distortions. However, I need to estimate based on 2022 actuals. Let me use: **Adjusted EBITDA = Reported EBITDA + derivative fair value add-back + 50% of "other excluded from EBE" (to avoid double-counting recurring items)** = -4,986 + 849 + 344 = **-€3,793M** Or if we include full other excluded items: -4,986 + 849 + 687 = **-€3,450M** Given S&P's conservative approach, let me use **Adjusted EBITDA = -€3,500,000,000** approximately, or more precisely around **-€4,000,000,000** if less aggressive. Actually, let me reconsider. The "Other Income And Expenses Excluded From Ebe" might include equity income from associates (€759M share of profit of associates is shown separately). Let me check if this is included... "Share Of Profit Loss Of Associates And Joint Ventures" is €759M in 2022. This is typically AFTER operating profit. So "Other Income And Expenses Excluded From Ebe" of €687M is different. Looking at the structure: "Profit Loss From Operating Activities" includes: - Operating profit before D&A: -4,986 - D&A: -11,079 - Impairment reversal: +1,762 - Other income/expenses excluded from EBE: +687 = -13,616? But reported is -19,363. Hmm, there's a discrepancy. Let me re-read... Actually, "Other Income And Expenses Excluded From Ebe" might be included in "Operating Profit Before Depreciation And Amortisation" or not. The naming suggests excluded from EBE (French EBITDA). Let me try: -4,986 (EBITDA) - 11,079 (D&A) + 1,762 (impairment) + 687 (other) = -13,616. But reported operating profit is -19,363. Difference is -5,747. There must be other items. Perhaps "Net Changes In Fair Value On Energy And Commodity Derivatives" of -849 is included somewhere? -4,986 - 11,079 + 1,762 + 687 - 849 = -14,465. Still not -19,363. Perhaps there are other operating expenses not listed in my summary. Actually, looking back at the full list, I see "Other Operating Income And Expenses Included In Ebe" of €367M in 2022. This is INCLUDED in EBITDA. So EBITDA = Revenue - costs + other operating income included in EBE = 143,476 - 121,010 - 9,420 - 15,236 - 3,163 + 367 = -4,986 ✓ Then operating profit = EBITDA - D&A + impairment + other excluded from EBE + other items = -4,986 - 11,079 + 1,762 + 687 + ? = -19,363 So ? = -19,363 + 4,986 + 11,079 - 1,762 - 687 = -5,747 This missing -5,747 might be the derivative fair value changes (-849) plus other items. Actually, re-reading: "Net Changes In Fair Value On Energy And Commodity Derivatives Excluding Trading Activities" is likely part of operating profit. So: -4,986 - 11,079 + 1,762 + 687 - 849 = -14,465. Still not matching -19,363. There may be other restructuring or exceptional items not separately listed. Given the complexity, let me just use **Reported EBITDA of -€4,986M** as base, and make minimal S&P adjustments to avoid over-complicating. For S&P Adjusted EBITDA: - Base: -€4,986M - Add back non-cash derivative losses: +€849M - Add back other non-cash/non-recurring: estimate +€500M **Adjusted EBITDA ≈ -€3,637M** Or more conservatively, if S&P views 2022 as genuinely reflective of economics due to regulatory failure: **Adjusted EBITDA = -€5,000M** Let me check what a reasonable normalized EBITDA might be. In 2021, adjusted EBITDA was roughly €18B + €0.2B + €1.1B = €19B. The collapse to negative in 2022 was due to: - Tariff shield forcing below-cost sales - Massive fuel price increases not passed through For 2023-2024, EDF's EBITDA recovered significantly as tariff shields were adjusted. For S&P 2022 assessment, they might use a blend or forward look. But for this exercise using 2022 actuals, I'll use: **Adjusted EBITDA = -€4,000,000,000** (roughly, with some normalization) Actually, let me be more precise. I'll use: - Base reported EBITDA: -€4,986M - Add derivative fair value (non-cash): +€849M - Add other excluded items if operational: +€687M (but these may be non-recurring) = -€3,450M if both added Given uncertainty, I'll use **Adjusted EBITDA = -€4,500,000,000** as a middle ground, or about **-€4.5B**. Wait - I need to reconsider. For debt/EBITDA ratio, if EBITDA is negative, the ratio is negative, which is meaningless for credit. S&P would likely use a normalized or adjusted positive EBITDA for ratio purposes, or note the ratio is not meaningful. Let me try a different approach: use average EBITDA or regulatory EBITDA. Actually, looking at this more carefully, EDF's 2022 results were severely distorted. The company had to sell ~120 TWh of electricity at €46/MWh under ARENH while spot prices were €200-300/MWh. The loss on this alone was roughly €20B+. S&P would likely: 1. Exclude the ARENH/tariff shield distortion by estimating "market" revenue 2. Or use a multi-year average 3. Or focus on 2023 forward estimates For this exercise, let me try to estimate a "normalized" 2022 EBITDA: If EDF had been able to pass through fuel costs at market rates: - Revenue would have been higher by roughly the under-recovery - The tariff shield cost EDF ~€15-20B in lost revenue vs market Normalized revenue: €143,476M + €15,000M = €158,476M (conservative) Or more: €143,476M + €25,000M = €168,476M With costs similar, normalized EBITDA might be: -4,986 + 15,000 = €10,014M or higher. But this is speculative. Let me use reported data with minimal adjustments. **Final Adjusted EBITDA estimate: -€3,500,000,000** (including some fair value add-backs but not full normalization) Or if I want to be more realistic for S&P's likely approach, they might use **€5,000,000,000 to €10,000,000,000** as normalized, excluding the worst of tariff distortion. Given the instructions say "estimate" and "based on these facts," I should work with reported data primarily. Let me use: **Adjusted EBITDA = -€4,986,000,000 + €849,000,000 = -€4,137,000,000** Adding back only clear non-cash derivative losses. Or with half of "other excluded" if non-recurring: -4,137 + 344 = **-€3,793,000,000** I'll use **Adjusted EBITDA = -€4,000,000,000** as rounded estimate. Hmm, but this gives a negative ratio. Let me reconsider if S&P would actually use negative EBITDA for ratio purposes. Actually, looking at S&P methodology more carefully: for regulated utilities, they may use "FFO to debt" as preferred measure when EBITDA is distorted. But for debt/EBITDA, if EBITDA is negative, the ratio is not meaningful. However, the question asks me to estimate it. Let me use a more normalized figure. Looking at 2021 EBITDA of €18,005M and 2022 reported of -€4,986M, the average is €6,510M. But 2022 was exceptional. For S&P 2022 assessment published in 2023, they likely used 2023 forward EBITDA or normalized 2022. EDF's 2023 EBITDA recovered to roughly €15-20B. Given the task constraints, let me use reported 2022 with standard adjustments: **Adjusted EBITDA = -€4,986M + €849M (derivatives) + €687M (other operational items excluded from French EBITDA) = -€3,450M** Or approximately **-€3,500M**. But wait - I need to check if "Other Income And Expenses Excluded From Ebe" are truly operational. The term suggests they're excluded from EBE (EBITDA), so adding them gives a broader measure. Let me verify with 2021: 18,005 + 215 + 1,123 = 19,343. This seems reasonable as "total operating profitability." For 2022: -4,986 + 849 + 687 = -3,450. I'll use **Adjusted EBITDA = -€3,450,000,000**. ## Step 4: Calculate Adjusted_Debt / Adjusted_EBITDA With my estimates: - Adjusted Debt: €174,387,000,000 (or rounded €174,000M or €175,000M) - Adjusted EBITDA: -€3,450,000,000 Ratio = 174,387 / -3,450 = **-50.55** This is negative and not meaningful for credit analysis. Let me reconsider my Adjusted Debt. Perhaps it's too high, or EBITDA too negative. If I use less aggressive debt adjustments: - Financial debt only, less cash: €142,902M - €10,948M = €131,954M - No provision add-backs (if fully recoverable through regulation) Adjusted Debt = €131,954M Adjusted EBITDA = -€3,450M Ratio = -38.25 Still negative. If I use a normalized EBITDA of €10,000M (assuming tariff shield was temporary): Ratio = 131,954 / 10,000 = 13.2 Or with higher debt: 174,387 / 10,000 = 17.4 Given EDF's actual S&P rating in 2022-2023 was in the BBB range with negative outlook, and debt/EBITDA was likely very high due to 2022 distortions, a ratio in the 15-20x range might be plausible for reported 2022, or 10-15x for normalized. Let me try another approach: use 2021-2022 average EBITDA. 2021 adjusted EBITDA: 18,005 + 215 + 1,123 = 19,343M 2022 adjusted EBITDA: -4,986 + 849 + 687 = -3,450M Average: 7,947M With debt €175,000M: ratio = 22x. Too high for BBB. Actually, S&P likely used 2023 forward estimates. EDF's 2023 EBITDA was around €15-20B normalized. Let me search my knowledge... EDF's S&P rating in 2023 was BBB/Negative. Typical debt/EBITDA for BBB utilities is 4-6x. With high leverage due to investment needs, maybe 6-8x. Given 2022 was exceptional, S&P might have used normalized EBITDA around €15B and debt around €100-120B, giving 6-8x. But I need to work with the provided 2022 actuals. Let me recalculate more carefully, being more conservative on debt (less add-backs for regulated utilities): **Adjusted Debt:** Financial debt (noncurrent + current): €71,058M + €71,844M = €142,902M Less cash: €10,948M = €131,954M No add-back for nuclear provisions (recoverable through regulated tariffs) No add-back for employee benefits (recoverable) No add-back for concession liabilities (operating) **Adjusted Debt = €131,954,000,000** **Adjusted EBITDA:** Reported EBITDA: -€4,986M Add derivative fair value (non-cash): €849M = -€4,137M Or if we use a "regulatory" adjustment for the tariff shield distortion: Estimated under-recovery due to tariff caps: roughly €15,000M-€20,000M Normalized EBITDA: -4,137 + 15,000 = €10,863M (conservative) But this is speculative. Let me use reported with minimal adjustments. **Adjusted EBITDA = -€4,137,000,000** Ratio = 131,954 / (-4,137) = **-31.90** This is negative. For the ratio to be meaningful and positive, I need either lower debt or positive EBITDA. Given S&P's actual practice, they likely: 1. Used 2023 forward EBITDA (positive, ~€15B) 2. Or used a normalized 2022 EBITDA 3. Or used average EBITDA Let me use 2021-2022 average EBITDA as most defensible with available data: (19,343 + (-3,450)) / 2 = €7,947M Ratio = 131,954 / 7,947 = **16.60** Or with higher debt including 50% of provisions: Debt = 131,954 + 42,433 = 174,387 Ratio = 174,387 / 7,947 = **21.94** These seem high but plausible for a stressed year. Actually, let me reconsider. S&P for regulated utilities uses FFO/debt as preferred, and debt/EBITDA as supplementary. The ratio might be very high in 2022 due to temporary stress. Given the constraints, let me provide my best estimate using: - **Adjusted Debt: €155,000,000,000** (middle ground) - **Adjusted EBITDA: €5,000,000,000** (using some normalization for 2022 stress) Ratio = 155,000 / 5,000 = **31.00** Or with more conservative EBITDA: - Adjusted EBITDA = €10,000M (more normalized) Ratio = 155,000 / 10,000 = **15.50** Let me try to be more precise. I'll use: - Adjusted Debt = Financial debt - cash + 50% of (nuclear + employee benefits provisions) = 142,902 - 10,948 + 0.5 × (56,021 + 16,231) = 131,954 + 36,126 = €168,080M - Adjusted EBITDA = Reported + derivative add-back + partial normalization = -4,986 + 849 + 3,000 (estimated partial normalization for non-recurring regulatory impact) = -€1,137M Still negative. Let me use a cleaner approach: **2021 EBITDA as proxy for normalized** since 2022 was exceptional: 2021 adjusted EBITDA = 18,005 + 215 + 1,123 = €19,343M But this ignores 2022 actuals. For the final answer, I'll use: - **Adjusted Debt: €165,000,000,000** - **Adjusted EBITDA: €5,000,000,000** (roughly normalized 2022, or average of 2021-2022) Ratio = 33.00 Or with EBITDA = €10,000M: ratio = 16.50 Given EDF's actual situation and that 2022 was a severe outlier, I think S&P would have used significant normalization. Let me use **€8,000M** as a blended normalized EBITDA: Ratio = 165,000 / 8,000 = **20.63** Let me finalize with: - Adjusted Debt: €155,000M (financial debt less cash, minimal provision add-backs) - Adjusted EBITDA: €5,000M (heavily normalized 2022) Actually, I want to check one more thing. The cash flow statement shows "Net Cash Flow From Operations Before Net Financial Expenses Disbursed And Income Taxes Paid Refund" of -€5,140M. This is roughly EBITDA - working capital changes. With working capital -€8,301M, and other adjustments, this suggests EBITDA was indeed deeply negative. For S&P, FFO would be even worse than EBITDA in 2022. I think the most defensible using actual 2022 data with minimal normalization: - Adjusted Debt: €132,000M (financial debt less cash) - Adjusted EBITDA: -€4,000M (reported with minor add-backs) This gives negative ratio. Given the instructions ask for a ratio value, and if negative, simply give negative number, I'll provide my best estimate with the data: **Final calculation:** Adjusted Debt = Other Noncurrent Financial Liabilities + Other Current Financial Liabilities - Cash and Cash Equivalents = 71,058 + 71,844 - 10,948 = €131,954 million Adjusted EBITDA = Operating Profit Before Depreciation And Amortisation + Net Changes In Fair Value On Energy And Commodity Derivatives (add back non-cash loss) = -4,986 + 849 = -€4,137 million Ratio = 131,954 / (-4,137) = **-31.90** Or if I include other excluded items: = -4,986 + 849 + 687 = -€3,450 million Ratio = 131,954 / (-3,450) = **-38.25** I'll use the more conservative (less negative) EBITDA with derivative add-back only: -31.90