I'll work through this step-by-step for IBERDROLA SA. ## Step 1: Identify the relevant industry IBERDROLA SA is a large integrated utility company with both regulated (networks/distribution) and unregulated (renewable generation, merchant power) operations. It operates across multiple regulatory jurisdictions (Spain, UK, US, Brazil, etc.). The relevant methodologies are **Regulated Utilities** and **Unregulated Power and Gas**. As an integrated utility, I'll apply the utility methodology framework. ## Step 2: Estimate 2021 Adjusted EBITDA From the data, for FY2021 (period 2021-01-01 to 2022-01-01): - Reported EBITDA ("Beneficio Bruto De Explotacion Ebitda"): €12,006M S&P adjustments for utilities: - **Lease adjustments**: Add back lease depreciation. Right-of-use assets at 2022-01-01 were €2,260M, at 2021-01-01 approximately similar. Lease liabilities (noncurrent + current) = €2,253M + €158M = €2,411M. Lease interest paid = €49M, principal = €154M. Total lease payments ≈ €203M. I'll add operating lease rents back (already in EBITDA for IFRS 16 reporters, so EBITDA already includes the adjustment). Under IFRS 16, EBITDA already excludes lease payments (they're split into depreciation and interest). S&P typically adds back operating lease depreciation to EBITDA. However, since IFRS 16 already capitalizes leases, the reported EBITDA already reflects this. S&P's adjustment is to add the full lease payment and remove the IFRS 16 treatment - but for simplicity and consistency, EBITDA as reported under IFRS 16 is approximately equivalent to S&P's adjusted treatment. - **Non-recurring items**: "Other Gains Losses" = €995M in 2021. Some of this may be non-recurring, but without detail, I'll keep it conservative and not adjust significantly. **2021 Adjusted EBITDA ≈ €12,006M** Adding lease adjustments (S&P adds operating lease expense back): approximately +€203M (total lease payments) **2021 Adjusted EBITDA ≈ €12,209M** ## Step 3: Estimate 2021 FFO FFO = Adjusted EBITDA - cash interest - cash taxes - Cash interest: Finance costs = €2,268M, but we need cash interest paid. From cash flow: Interest paid on debt = €741M + lease interest €49M + capitalized interest €145M + hybrid interest €94M = €1,029M. But S&P typically uses total cash interest. Total interest paid = €741M + €49M + €145M + €94M = €1,029M. Actually, let me use the cash flow statement more carefully: - Interest paid (financing): €741M - Interest paid (investing/capitalized): €145M - Lease interest: €49M - Hybrid subordinated bond interest: €94M S&P cash interest = €741M + €49M + €145M = €935M (excluding hybrid interest since S&P treats hybrids with equity credit) Wait - S&P typically includes all cash interest. Let me include hybrid: €741 + €49 + €145 + €94 = €1,029M - Cash taxes: €832M **2021 FFO = €12,209M - €1,029M - €832M = €10,348M** ## Step 4: Estimate 2021 Adjusted Debt Balance sheet data at 2022-01-01 (end of FY2021): - Non-current financial debt (bank debt + bonds): €31,179M - Current financial debt (bank debt + bonds): €9,984M - Total reported debt = €41,163M S&P adjustments: - **Lease liabilities**: NC €2,253M + C €158M = €2,411M - **Pension deficit**: NC provisions for employee benefits = €1,592M (rough estimate of pension deficit) - **Hybrid debt**: "Instrumentos de capital" NC €525M + C €100M = €625M. Also, "Emision de obligaciones perpetuas subordinadas" in 2021 = €2,740M, recorded in NCI. S&P typically gives hybrids intermediate equity credit (50% debt, 50% equity). Iberdrola has perpetual subordinated bonds. From NCI, there were €2,750M issued. Total hybrids appear to be significant. The hybrid interest accrued was €155M in FY2021, suggesting a substantial amount. Let me estimate total hybrids outstanding. From equity movements, total hybrid issuance = €2,740M in FY2021. Plus existing hybrids. Given the interest of €155M and typical coupon rates ~3-4%, outstanding hybrids ≈ €4,000-5,000M. S&P typically gives 50% equity credit, so 50% as debt. Let me estimate hybrids at ~€5,000M (rough). 50% debt = €2,500M. - **Cash**: €4,033M. S&P may allow partial netting. For utilities, typically minimal cash is netted. Let's assume S&P nets surplus cash above operating needs. Operating cash needs ≈ €500M. Eligible cash = €4,033M - €500M = €3,533M. - **Other debt-like items**: "Instrumentos de capital con caracteristicas de pasivo financiero" = €625M (these are debt-like capital instruments, already included above). - **Other non-current financial liabilities**: €1,545M **2021 Adjusted Debt = €41,163M + €2,411M + €1,592M + €2,500M + €1,545M - €3,533M = €45,678M** ## Step 5: 2021 Adjusted Debt / Adjusted EBITDA **€45,678M / €12,209M = 3.74x** ## Step 6: 2021 FFO / Adjusted Debt **€10,348M / €45,678M = 0.227 (22.7%)** ## Step 7: Estimate 2022 Adjusted EBITDA For FY2022 (period 2022-01-01 to 2023-01-01): - Reported EBITDA: €13,228M Lease adjustment: Total lease payments = principal €175M + interest €61M = €236M **2022 Adjusted EBITDA ≈ €13,228M + €236M = €13,464M** ## Step 8: Estimate 2022 FFO Cash interest: - Interest paid (financing): €1,495M - Interest paid (investing/capitalized): €189M - Lease interest: €61M - Hybrid interest: €169M Total cash interest = €1,495M + €61M + €189M + €169M = €1,914M Cash taxes: €1,055M **2022 FFO = €13,464M - €1,914M - €1,055M = €10,495M** ## Step 9: Estimate 2022 Adjusted Debt Balance sheet at 2023-01-01: - NC debt: €36,129M - C debt: €10,458M - Total reported debt = €46,587M Adjustments: - Lease liabilities: €2,287M + €151M = €2,438M - Pension deficit: €1,226M - Hybrids: ~€5,000M × 50% = €2,500M - Other NC financial liabilities: €1,534M - Cash netting: €4,608M - €500M = €4,108M **2022 Adjusted Debt = €46,587M + €2,438M + €1,226M + €2,500M + €1,534M - €4,108M = €50,177M** ## Step 10: 2022 Adjusted Debt / Adjusted EBITDA **€50,177M / €13,464M = 3.73x** ## Step 11: 2022 FFO / Adjusted Debt **€10,495M / €50,177M = 0.209 (20.9%)** ## Step 12: Classify credit trend **Signal 1 - Leverage**: 3.73x - 3.74x = -0.01x → **Stable** (between -0.2x and +0.2x) **Signal 2 - Cash flow coverage**: 0.209 - 0.227 = -0.018 → **Stable** (between -0.03 and +0.03) Both signals indicate **Stable**. Stable