Analysis: Ranking Motion: Moody’s upgrades Repsol’s issuer score to Baa1 from Baa2; maintains secure outlook

Frankfurt am Essential, December 20, 2022 — Moody’s Traders Service (“Moody’s”) upgraded the long run issuer score of Repsol S.A. (Repsol or the corporate) to Baa1 from Baa2. Concurrently Moody’s affirmed the brief time period Prime-2 (P-2) backed Business Paper score issued by its assured subsidiary Repsol Worldwide Finance B.V. and upgraded its backed junior subordinate score to Baa3 from Ba1. The score company additionally upgraded the backed senior unsecured Euro Medium Time period Word (EMTN) programme scores for Repsol’s subsidiaries Repsol Europe Finance and Repsol Worldwide Finance B.V. (each assured by Repsol S.A.) to (P)Baa1 from (P)Baa2 in addition to backed senior unsecured scores to Baa1 from Baa2. Moody’s additionally affirmed the (P)P-2 backed Different Quick Time period score and upgraded to (P)Baa1 from (P)Baa2 backed senior unsecured Shelf score of Repsol Worldwide Finance B.V. and affirmed the P-2 backed Business Paper score of Repsol Europe Finance. On the identical time Moody’s withdrawn the (P)Baa2 senior unsecured Shelf score and the outlook of Repsol Oil & Gasoline Canada Inc.

The outlook on all scores, besides Repsol Oil & Gasoline Canada Inc., stays secure.

“The improve displays the improved profitability of its upstream portfolio and the usage of sturdy money move generated throughout a excessive value surroundings to repay debt, together with the corporate’s observe file of sustaining, and dedication to defending, a robust capital construction,” says Janko Lukac a Moody’s Vice President – Senior Analyst. Moody’s expects trade cycles to proceed to affect Repsol, and profitability and money move to be much less sturdy on the cycle peak and worse on the cycle trough due to world initiatives to restrict antagonistic impacts of local weather change. Nevertheless, this shift will happen over a long time, and Repsol’s decrease value upstream asset base and the diminished debt load present it with better flexibility to handle future value volatility and vitality transition danger.

A full record of affected scores may be discovered on the finish of this press launch.

RATINGS RATIONALE

Repsol improved its FCF break even per barrel Brent to properly under $40 from round $50 about 5 years in the past and likewise elevated its optionality by promoting a 25% stake of its upstream division to the US funding agency EIG Companions for $4.8 billion. Repsol’s credit metrics improved to 132% RCF/web debt, properly above our expectations (excessive 30s) for an improve, pushed by sturdy working outcomes and money era, which facilitated the reimbursement of gross debt (Moody’s adjusted) by about €2 billion since 2019. Moody’s expects Repsol to make use of its very excessive money & money equivalents of about €9.7 billion and the upfront fee of $2.4 billion from the upstream transaction in early 2023 to speed up investments to rework its enterprise profile. Moody’s additionally anticipates a rise in shareholder distributions (according to its steerage of distributing 25-30% of money from operations) however that Repsol will however keep a conservative capital construction according to the Baa1 score.

Moody’s expects Repsol would proceed to take care of sturdy credit score ratios of above 35% RCF /web debt with average damaging free money move era of about €1.5 billon on the finish of 2023 even in a draw back situation assuming oil and fuel costs of $55 barrel Brent and $2.50 Mmbtu Henry Hub and that financial cooling reduces Iberian refining margins to $5 per barrel. Utilizing the higher finish ($70 brent / 3.50HH) of our medium time period value vary, Repsol would be capable of repay maturing debt, speed up investments and pay engaging shareholder distributions whereas sustaining very sturdy credit score metrics exceeding 50% RCF / web debt in 2023 and 2024.

LIQUIDITY

Repsol’s liquidity is great with €9.7 billion money and equivalents on stability sheet and entry to €2.7 billion dedicated traces which together with the $2.4 upfront fee from the upstream transaction will simply fund anticipated reasonably damaging FCF in 2023 and probably in 2024 as properly.

ESG

Environmental, Social and Governance issues have been a driving issue of the score task. Moody’s thought-about Repsol’s acceleration of investments in low carbon companies and the corporate growing its optionality to probably exit the upstream enterprise with the sale of a 25% stake on this division. Moody’s governance evaluation considers Repsol’s conservative monetary coverage and the elevated complexity because of minority shareholders within the upstream and renewable enterprise items.

RATING OUTLOOK

The secure outlook displays expectations for Repsol’s credit score metrics to stay comfortably according to the expectations for the Baa1 score class. The outlook additionally incorporates Moody’s expectation that sturdy working money move era amid a spread of oil value situations together with very excessive money balances will fund rising shareholder remuneration and investments to speed up portfolio transformation into low carbon enterprise.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

There’s restricted potential for a constructive score motion over the following a number of years. Nevertheless, a mixture of a meaningfully bigger, extra diversified, and extra worthwhile E&P portfolio; proof of a profitable execution of its technique to develop a worthwhile low carbon vitality enterprise changing into a fabric contributor to earnings and money era; and a stronger monetary profile measured by a sustainable RCF/Web Debt metric of at the very least 50% may assist a constructive score motion.

Failure to interchange depleting reserves or significant deterioration of money break even value in its upstream portfolio, failure to construct a worthwhile low carbon enterprise or a re-leveraging of the stability sheet, with RCF/web debt falling sustainably under the mid-30s, may result in a downgrade of the score.

LIST OF AFFECTED RATINGS

Upgrades:

..Issuer: Repsol Europe Finance

….BACKED Senior Unsecured Medium-Time period Word Program, Upgraded to (P)Baa1 from (P)Baa2

….BACKED Senior Unsecured Common Bond/Debenture, Upgraded to Baa1 from Baa2

..Issuer: Repsol Worldwide Finance B.V.

….BACKED Junior Subordinated Common Bond/Debenture, Upgraded to Baa3 from Ba1

….BACKED Senior Unsecured Medium-Time period Word Program, Upgraded to (P)Baa1 from (P)Baa2

….BACKED Senior Unsecured Common Bond/Debenture, Upgraded to Baa1 from Baa2

….BACKED Senior Unsecured Shelf, Upgraded to (P)Baa1 from (P)Baa2

..Issuer: Repsol S.A.

….LT Issuer Ranking, Upgraded to Baa1 from Baa2

Affirmations:

..Issuer: Repsol Europe Finance

….BACKED Business Paper, Affirmed P-2

..Issuer: Repsol Worldwide Finance B.V.

….BACKED Business Paper, Affirmed P-2

….BACKED Different Quick Time period, Affirmed (P)P-2

Withdrawals:

..Issuer: Repsol Oil & Gasoline Canada Inc.

….Senior Unsecured Shelf, Withdrawn, beforehand rated (P)Baa2

Outlook Actions:

..Issuer: Repsol Europe Finance

….Outlook, Stays Secure

..Issuer: Repsol Worldwide Finance B.V.

….Outlook, Stays Secure

..Issuer: Repsol Oil & Gasoline Canada Inc.

….Outlook, Modified To Ranking Withdrawn From Secure

..Issuer: Repsol S.A.

….Outlook, Stays Secure

PRINCIPAL METHODOLOGY

The principal methodology utilized in these scores was Built-in Oil and Gasoline printed in September 2022 and obtainable at https://scores.moodys.com/api/rmc-documents/393389. Alternatively, please see the Ranking Methodologies web page on https://scores.moodys.com for a duplicate of this system.

COMPANY PROFILE

Headquartered in Madrid, Spain, Repsol is a medium-sized built-in oil and fuel firm and ranks as one of many largest industrial firms in Spain.

REGULATORY DISCLOSURES

For additional specification of Moody’s key score assumptions and sensitivity evaluation, see the sections Methodology Assumptions and Sensitivity to Assumptions within the disclosure type. Moody’s Ranking Symbols and Definitions may be discovered on https://scores.moodys.com/rating-definitions.

For scores issued on a program, collection, class/class of debt or safety this announcement supplies sure regulatory disclosures in relation to every score of a subsequently issued bond or observe of the identical collection, class/class of debt, safety or pursuant to a program for which the scores are derived completely from current scores in accordance with Moody’s score practices. For scores issued on a assist supplier, this announcement supplies sure regulatory disclosures in relation to the credit standing motion on the assist supplier and in relation to every specific credit standing motion for securities that derive their credit score scores from the assist supplier’s credit standing. For provisional scores, this announcement supplies sure regulatory disclosures in relation to the provisional score assigned, and in relation to a definitive score which may be assigned subsequent to the ultimate issuance of the debt, in every case the place the transaction construction and phrases haven’t modified previous to the task of the definitive score in a way that might have affected the score. For additional info please see the issuer/deal web page for the respective issuer on https://scores.moodys.com.

For any affected securities or rated entities receiving direct credit score assist from the first entity(ies) of this credit standing motion, and whose scores could change because of this credit standing motion, the related regulatory disclosures shall be these of the guarantor entity. Exceptions to this strategy exist for the next disclosures, if relevant to jurisdiction: Ancillary Companies, Disclosure to rated entity, Disclosure from rated entity.

The scores have been disclosed to the rated entity or its designated agent(s) and issued with no modification ensuing from that disclosure.

These scores are solicited. Please consult with Moody’s Coverage for Designating and Assigning Unsolicited Credit score Rankings obtainable on its web site https://scores.moodys.com.

Regulatory disclosures contained on this press launch apply to the credit standing and, if relevant, the associated score outlook or score overview.

Moody’s basic rules for assessing environmental, social and governance (ESG) dangers in our credit score evaluation may be discovered at https://scores.moodys.com/paperwork/PBC_1288235.

No less than one ESG consideration was materials to the credit standing motion(s) introduced and described above.

The World Scale Credit score Ranking on this Credit score Ranking Announcement was issued by one in all Moody’s associates exterior the UK and is endorsed by Moody’s Traders Service Restricted, One Canada Sq., Canary Wharf, London E14 5FA below the regulation relevant to credit standing businesses within the UK. Additional info on the UK endorsement standing and on the Moody’s workplace that issued the credit standing is offered on https://scores.moodys.com.

Please see https://scores.moodys.com for any updates on modifications to the lead score analyst and to the Moody’s authorized entity that has issued the score.

Please see the issuer/deal web page on https://scores.moodys.com for extra regulatory disclosures for every credit standing.

Janko Lukac
Vice President – Senior Analyst
Company Finance Group
Moody’s Deutschland GmbH
An der Welle 5
Frankfurt am Essential, 60322
Germany
JOURNALISTS: 44 20 7772 5456
Consumer Service: 44 20 7772 5454

Karen Berckmann, CFA
Affiliate Managing Director
Company Finance Group
JOURNALISTS: 44 20 7772 5456
Consumer Service: 44 20 7772 5454

Releasing Workplace:
Moody’s Deutschland GmbH
An der Welle 5
Frankfurt am Essential, 60322
Germany
JOURNALISTS: 44 20 7772 5456
Consumer Service: 44 20 7772 5454