# Analysis of Hybrid Bond Recommendation for Acciona SA ## Company Profile Acciona SA is a Spanish infrastructure and renewable energy conglomerate. It operates across multiple sectors including energy (through Acciona Energía), infrastructure/construction, water, and other services. This makes it a diversified entity with exposure to both regulated/contracted renewable energy and unregulated construction/infrastructure activities. ## Key Financial Metrics (FY2022, reported as of 2023-01-01) ### Capital Structure - **Total Equity:** €6,304M - **Total Debt (financial liabilities):** - Non-current bonds/securities: €3,101M - Non-current loans: €2,624M - Non-current lease liabilities: €439M - Current bonds/securities: €1,139M - Current loans: €553M - Current lease liabilities: €72M - **Total gross financial debt: ~€7,928M** - **Cash and cash equivalents:** €2,360M - **Net debt: ~€5,568M** ### Leverage - Net Debt/Equity: ~0.88x - Net Debt/EBITDA (EBITDA ≈ Operating profit + D&A = €1,334M + €762M = ~€2,096M): ~2.7x - FFO/Debt would need further adjustment but leverage appears moderate-to-elevated ### Profitability - Revenue grew 38% YoY to €11,195M - EBITDA margin: ~18.7% (€2,096M / €11,195M) - Net income attributable to parent: €441M (up 33%) - ROE: ~9.0% ### Cash Flow - Operating cash flow: €1,648M (strong improvement from €574M) - Capex: €2,195M in PP&E and intangibles + €244M in acquisitions = ~€2,439M - **Free cash flow: significantly negative (~-€791M)** - Net financing cash flows: €338M (net borrower) ## Key Considerations for Hybrid Bond Issuance ### 1. Capital Expenditure Intensity — HIGH Acciona is in a massive investment phase. Capex of €2,439M significantly exceeds operating cash flow of €1,648M. This is driven by its renewable energy expansion (Acciona Energía) and infrastructure projects. PP&E grew from €8,066M to €9,485M (+18%). Total assets grew from €19,603M to €22,595M (+15%). This capex intensity is expected to continue given the energy transition commitments. ### 2. Leverage Trajectory — UNDER PRESSURE - Gross debt increased materially: from ~€6,831M to ~€7,928M (+€1,097M or +16%) - Net debt increased from ~€4,513M to ~€5,568M - The company issued €4,021M in new debt instruments in 2022 (vs. repayments of €3,186M), indicating substantial refinancing activity and incremental borrowing - Debt/EBITDA at ~2.7x is manageable but trending upward with continued heavy investment ### 3. Existing Hybrid Bonds The line item "Participaciones Preferentes, Obligaciones y Otros Valores Negociables" could potentially include hybrid instruments. However, without explicit identification of existing hybrids in the data, I'll note that Acciona Energía (subsidiary) has historically issued green hybrid bonds. The €3,101M non-current bonds figure likely includes some hybrid instruments. Acciona Energía issued a €500M hybrid in 2021. This means there is already some hybrid in the structure, suggesting familiarity with the instrument. ### 4. Rating Considerations Acciona is typically rated in the BBB range (investment grade). With significant capex ahead for renewable energy expansion and net negative free cash flow, there is meaningful pressure on maintaining investment grade metrics. Hybrid issuance with 50% equity credit from rating agencies would help manage adjusted leverage. ### 5. Cost of Debt Analysis - Current finance costs: €256M on ~€7,928M gross debt = ~3.2% average cost - 2022 EUR swap curve (10Y): ~1.93% average - iBoxx EUR Non-Financial IG sub-senior spread: ~2.30% - Estimated hybrid coupon: swap rate + corporate spread + subordination premium ≈ 1.93% + 2.30% + additional hybrid premium ≈ 5-6% - This is materially higher than the current average cost of debt (~3.2%), but given the rising rate environment in 2022, new senior debt would also be more expensive - The incremental cost of hybrid vs. new senior debt is moderate (subordination premium ~200bps) ### 6. Adjusted Capital Calculation - Total Adjusted Capital ≈ Equity + Adjusted Debt ≈ €6,304M + ~€7,500M (adjusted) ≈ ~€13,800M - 15% of TAC ≈ ~€2,070M - 11.25% of TAC ≈ ~€1,553M - 7.5% of TAC ≈ ~€1,035M - 3.75% of TAC ≈ ~€518M ### 7. Strategic Assessment **Arguments FOR significant hybrid issuance (7.5-11.25%):** - Very high capex intensity with negative FCF - Growing leverage with continued investment needs - Investment grade preservation is important for a capital-intensive infrastructure/renewables company - Hybrid provides equity credit that improves adjusted metrics - Company already has experience with hybrid instruments - The renewable energy transition requires massive sustained investment - Non-controlling interests of €1,419M suggest complex funding across subsidiaries **Arguments AGAINST maximum hybrid (15%):** - Leverage at ~2.7x Net Debt/EBITDA is not critically stressed - Operating cash flow improved dramatically (€574M → €1,648M) - Profitability is strong and improving - The cost differential to senior debt is meaningful in a rising rate environment - Some hybrid likely already exists in the capital structure ## Conclusion Acciona is a company with: - **High capex intensity** driving significant negative free cash flow - **Moderate but increasing leverage** that needs management - **Investment grade rating** that is important to preserve for continued access to capital markets - **Strong operational performance** with improving profitability - **Existing familiarity** with hybrid instruments The company sits squarely in the zone where hybrid issuance meaningfully improves adjusted leverage metrics and helps preserve investment grade status during a period of heavy capital deployment. The capex program is large but not quite "transformational" — it's a sustained multi-year growth investment. Leverage is pressured but not at crisis levels. The hybrid cost, while higher than current average, is manageable given improving cash generation. This aligns most closely with the **7.5% guideline**: moderate refinancing/investment needs, rating headroom moderately constrained, and hybrid issuance meaningfully improving adjusted leverage metrics. 7.5%