Step 1: Industry Identification "Électricité de France" (EDF) operates in electricity generation, transmission, and distribution. It is a regulated utility. The relevant S&P methodology is "Regulated Utilities". Step 2: Estimate 2021 Adjusted EBITDA Formula: Adjusted_EBITDA = EBITDA (reported or reconstructed) + adjustment_leases + nonrecurring_losses - nonrecurring_gains ± pension_adjustments ± joint_venture_proportional_EBITDA ± other_normalization_adjustments From the facts: - Operating Profit Before Depreciation And Amortisation (EBITDA) 2021: 18,005,000,000 EUR - Depreciation, Amortisation, Provisions, and Fair Value Gains/Losses 2021: 10,488,000,000 EUR (Note: EBITDA per S&P often reconstructs this from Operating Profit + D&A. Let's check D&A: 10,789,000,000. Operating Profit 2021 = 5,225,000,000. Reconstructed EBITDA = 5,225,000,000 + 10,789,000,000 = 16,014,000,000. The reported "Operating Profit Before Depreciation And Amortisation" is 18,005,000,000 EUR. The difference is likely Impairments/Provisions. We use the reported 18,005M EUR as the starting EBITDA.) - Other Operating Income And Expenses Included In Ebe (2021): 4,262,000,000 EUR. Given the massive drop in 2022 to 367M, and the 2022 net loss, this likely contains nonrecurring gains. Let's treat this as a nonrecurring gain to normalize. Nonrecurring_gains = 4,262,000,000. - Impairment Loss Reversal (2021): 653,000,000 EUR (Gain). Nonrecurring_gains = 653,000,000. - Share of Profit of Associates (2021): 644,000,000 EUR (already in EBITDA). - Other Finance Cost (2021): 4,489,000,000 EUR. This large positive value in a year with small finance cost (360M) is highly nonrecurring. Nonrecurring_gains = 4,489,000,000. - Discount Effect (2021): -2,670,000,000 EUR (Loss). Nonrecurring_losses = 2,670,000,000. - Net Changes in Fair Value (2021): -215,000,000 EUR (Loss). This is often normalized in utilities. Nonrecurring_losses = 215,000,000. - Leases, pension adjustments, other normalization: None available/identifiable from the facts. Adjusted EBITDA 2021 = 18,005 - 4,262 - 653 + 2,670 + 215 - 4,489 = 11,486,000,000 EUR. (Note: Excluding the 4.489B nonrecurring finance gain, which artificially inflated reported EBITDA, aligns with S&P's focus on operating cash generation). Step 3: Estimate 2021 FFO Formula: FFO = Adjusted_EBITDA - cash_interest - cash_taxes From the facts: - Cash Interest: Net Financial Expenses Disbursed 2021 = 588,000,000 EUR. - Cash Taxes: Income Taxes Paid Refund 2021 = 2,276,000,000 EUR. FFO 2021 = 11,486 - 588 - 2,276 = 8,622,000,000 EUR. Step 4: Estimate 2021 Adjusted Debt Formula: Adjusted_Debt = (reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items) - eligible_cash From the facts: - Reported Debt: Other Noncurrent Financial Liabilities (56,543M) + Other Current Financial Liabilities (45,014M) = 101,557,000,000 EUR. - Special French Public Electricity Distribution Concession Liabilities: 48,853,000,000 EUR. Under S&P utilities methodology, concession liabilities are debt-like obligations and must be added. - Other Debt-like items: None identifiable. - Leases, pension deficit, guarantees: None identifiable from balance sheet. - Eligible Cash: Cash And Cash Equivalents 2021 = 9,919,000,000 EUR. Adjusted Debt 2021 = 101,557 + 48,853 - 9,919 = 140,491,000,000 EUR. Step 5: Calculate 2021 Adjusted Debt / Adjusted EBITDA Ratio = 140,491 / 11,486 = 12.23x Step 6: Calculate 2021 FFO / Adjusted Debt Ratio = 8,622 / 140,491 = 0.0614 (6.14%) Step 7: Estimate 2022 Adjusted EBITDA From the facts: - Operating Profit Before Depreciation And Amortisation (EBITDA) 2022: -4,986,000,000 EUR. - Other Operating Income And Expenses Included In Ebe (2022): 367,000,000 EUR (No major nonrecurring gain identified here). - Impairment Loss (2022): 1,762,000,000 EUR. This is a non-cash loss and should be added back to normalize EBITDA. Nonrecurring_losses = 1,762,000,000. - Net Changes in Fair Value (2022): -849,000,000 EUR (Loss). Nonrecurring_losses = 849,000,000. - Other Finance Cost (2022): -1,997,000,000 EUR (Loss). It's an operating loss/restructuring hit (likely tariff shield effects in 2022). Nonrecurring_losses = 1,997,000,000. Adjusted EBITDA 2022 = -4,986 + 1,762 + 849 + 1,997 = -378,000,000 EUR. Step 8: Estimate 2022 FFO From the facts: - Cash Interest: Net Financial Expenses Disbursed 2022 = 1,003,000,000 EUR. - Cash Taxes: Income Taxes Paid Refund 2022 = 1,282,000,000 EUR. FFO 2022 = -378 - 1,003 - 1,282 = -2,663,000,000 EUR. Step 9: Estimate 2022 Adjusted Debt From the facts: - Reported Debt: Other Noncurrent Financial Liabilities (71,058M) + Other Current Financial Liabilities (71,844M) = 142,902,000,000 EUR. - Special French Public Electricity Distribution Concession Liabilities: 49,459,000,000 EUR. - Eligible Cash: Cash And Cash Equivalents 2022 = 10,948,000,000 EUR. Adjusted Debt 2022 = 142,902 + 49,459 - 10,948 = 181,413,000,000 EUR. Step 10: Calculate 2022 Adjusted Debt / Adjusted EBITDA Ratio = 181,413 / -378 = -479.93x (Negative EBITDA makes the leverage ratio highly negative, reflecting severe financial risk). Step 11: Calculate 2022 FFO / Adjusted Debt Ratio = -2,663 / 181,413 = -0.0147 (-1.47%) Step 12: Classify the year-on-year credit trend - Signal 1 (Leverage change): -479.93x - 12.23x = -492.16x. Since this is ≤ -0.2x, Signal 1 is "Improving". (Note: While mathematically "improving" due to the sign flip from positive to negative EBITDA, a highly negative leverage ratio means the company is loss-making, which is a severe deterioration in credit quality. The mechanical rule yields Improving, but we must consider Signal 2 for true economic picture). - Signal 2 (Cash-flow coverage change): -0.0147 - 0.0614 = -0.0761. Since this is ≤ -0.03, Signal 2 is "Deteriorating". - Combining signals: Signal 1 (Improving) conflicts with Signal 2 (Deteriorating). The "Improving" leverage ratio is a mathematical artifact of EBITDA turning negative (denominator turning negative makes the ratio negative). A negative FFO and negative EBITDA represent a fundamental deterioration in the company's ability to service debt. FFO/Debt dropping from 6.14% to -1.47% clearly shows reduced cash generation. The magnitude of the FFO drop is immense (from +8.6B to -2.7B). Therefore, Signal 2 is vastly more material and representative of the true credit trend. Following the conservative bias, the trend is Deteriorating. Deteriorating