OREANDA-NEWS. Fitch Ratings has affirmed Amprion GmbH's (Amprion) Long-term Issuer Default Rating (IDR) at 'A-' with a Stable Outlook.

The affirmation reflects Amprion's low business risk as a regulated power transmission system operator, with a predictable earnings profile and currently still close to zero net leverage. Over time, we expect material capex plans to result in an increase in leverage. We expect management to balance debt and equity funding in relation to earnings to maintain a financial profile within Fitch's rating guidance.

KEY RATING DRIVERS
High Capex Ahead
Amprion has entered a period of intensified capex related to grid extension with the peak levels planned for 2016-2018. This in turn will lead to a significant increase in funds from operations (FFO) net leverage from around zero currently to 2x-3x in 2017 and 4x-5x in 2019. While we expect capex to be large and concentrated over a fairly short period of time, we do not expect our negative rating guidance to be breached. We assume that management will be successful in balancing capex with the company's operating cash flows and debt and equity financing.

Equity Increase
Amprion received an equity injection of EUR400m in June 2015, which showed shareholders' commitment to the company's investment plans and provided it with funds for investments. The injection also postponed the needed debt funding for its planned capex, which we now expect to take place in the course of 2016.

Strong Operating Efficiency
Amprion's high efficiency score of 100% set by the Federal Network Agency in 2014 should allow the company to outperform regulatory assumptions over the second regulatory period (2014-2018) providing a solid foundation for the ongoing capex programme. Furthermore, Amprion's certification of asset management processes in 2014 and fulfilment of all requirements for the Publicly Available Specification 55 (PAS55) should enhance decision- making for operations, maintenance and capex, increasing the likelihood of successful asset base expansion.

Low Business Risk
Amprion is one of four electricity transmission networks in Germany. It operates as a regional monopoly and is regulated by the Federal Network Agency. The company's services are crucial for the security of electricity supply in its service area, covering a population of 27 million and spanning from Lower Saxony to the Alps.

KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Average EBITDA in 2015-2019 at a similar level to 2014
- Large portion of provisions (EUR624m at end-2014) to be utilised in the next five years, diminishing FFO
- Capex peaking in 2016-2018
- Continuation of the dividend policy

RATING SENSITIVITIES
Positive: Until the large capex programme has been completed, there is limited rating upside potential for Amprion. In the long term, the following circumstances could lead to positive rating action:
- FFO net leverage lower than 4.0x on a sustained basis.
- FFO interest cover above 6.5x on a sustained basis (2014: around 20x).
- Positive FCF as a result of the company reaching a steady state of capex.

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- FFO net leverage exceeding 5.0x on a sustained basis.
- FFO interest cover below 4.0x on a sustained basis.
- Adverse regulatory developments resulting in weaker transparency and/or reduced earnings.

LIQUIDITY
As of end-September 2015 Amprion had available EUR1,335m of cash and cash equivalents (part of which Fitch considers to be restricted, although the breakdown is not publicly disclosed) as well as EUR248m of undrawn, committed capex facilities (August 2016 maturity) for the grid business. At this date, the company had no short-term debt. Given its sizeable capex commitments, the company received an equity injection of EUR400m from its shareholders in June 2015 and will raise additional debt in 2016. The committed capex facility is expected to be renewed early 2016.

Amprion also has a EUR1,800m revolving credit facility (August 2016 maturity) to fund its obligations under the renewable energy act (Erneuerbare Energien Gesetz), which remained undrawn as of end-September 2015. This dedicated facility mostly funds feed-in-tariffs for wind and solar installations, expenditure which is passed through to consumers with a one-year time lag. Amprion is funding this quasi-working capital, but is legally entitled to recover outstandings together with associated costs. The revolving credit facility is expected to be renewed early 2016.