I'll work through this step-by-step. ## Step 1: Identify the relevant industry Ørsted A/S is a major renewable energy company (primarily offshore wind) based in Denmark. They operate in the **Unregulated Power and Gas** sector, as they are primarily an unregulated renewable energy generator. Some portions may have regulated-like characteristics (feed-in tariffs, CfDs), but the company is fundamentally an unregulated power producer. ## Step 2: Estimate 2021 Adjusted_EBITDA **Reported EBITDA (2021):** 24,296,000,000 DKK (given as "Profit Loss From Operating Activities Before Interest Taxes Depreciation And Amortisation Expense") **Adjustments:** - **Lease adjustment:** S&P adds back operating lease payments. Ørsted has lease liabilities (noncurrent: 6,812M + current: 720M = 7,532M at end 2021). Lease payments in 2021 financing: 520M DKK. I'll add back lease depreciation portion (already in EBITDA) - leases are already capitalized under IFRS 16, so EBITDA already excludes lease depreciation. No additional adjustment needed for EBITDA since IFRS 16 is already applied. - **Non-recurring gains/losses:** "Other Income" includes asset disposal gains. "Gains Losses On Disposals Of Investments" 2021: -742M. The "Adjustments For Losses Gains On Disposal Of Noncurrent Assets" in cash flow is -7,920M (2021), suggesting ~7,920M in net gains on disposals were in EBITDA. However, for Ørsted, farm-down gains (selling stakes in wind farms) are part of the business model. S&P may treat some of these as recurring for Ørsted since it's a core part of their asset rotation strategy. I'll keep the reported EBITDA but note this. - **Other adjustments:** The "Change In Derivatives Other Adjustments" in cash flow (-2,051M for 2021) suggests derivative mark-to-market adjustments. These are non-cash and already in EBITDA but should be normalized. For simplicity and consistency with S&P's approach, I'll use: **Adjusted_EBITDA (2021) ≈ 24,296M DKK** Given Ørsted's farm-down model is integral to operations, S&P typically includes these. However, S&P would also normalize for mark-to-market derivatives. The cash flow adjustments show -2,051M for derivatives. Removing this: **Adjusted_EBITDA (2021) ≈ 24,296 - 2,051 = ~22,245M DKK** Actually, let me reconsider. The EBITDA reported already includes all operating items. S&P typically starts from EBITDA and adds back lease costs under IFRS 16 (already done), and adjusts for non-cash/non-recurring items. Let me use a cleaner approach: Operating CF before working capital changes = EBITDA + adjustments for non-cash items = 24,296 - 7,920 (disposal gains) - 2,051 (derivatives) - 158 (provisions) - 262 (other) = 13,905M This is too low. Let me stick with reported EBITDA and add lease interest. **Adjusted_EBITDA (2021) ≈ 24,296M DKK** (keeping it simple as S&P would use reported EBITDA with lease add-back already embedded under IFRS 16) ## Step 3: Estimate 2021 FFO **Cash interest paid (2021):** 3,985M DKK **Cash taxes paid (2021):** 1,380M DKK **Lease payments (interest portion):** Already included. Total lease payments = 520M (financing). Approximate interest on leases ≈ ~200M. FFO = Adjusted_EBITDA - cash_interest - cash_taxes FFO = 24,296 - 3,985 - 1,380 = 18,931M DKK ## Step 4: Estimate 2021 Adjusted_Debt **Balance sheet date:** January 1, 2022 (end of 2021 fiscal year) - Long-term borrowings: 31,502M - Short-term borrowings: 19,493M - Total reported debt: 50,995M - Lease liabilities: 6,812 + 720 = 7,532M - **Hybrid capital:** S&P typically treats hybrid capital as partially debt. For Ørsted's hybrids, S&P usually gives 50% equity credit, so 50% is debt: 17,984 × 50% = 8,992M - **Pension deficit:** Not explicitly shown, likely minimal - **Surplus cash deduction:** S&P may deduct some cash. Cash = 8,624M. S&P typically deducts readily available cash minus operating needs. Conservative: deduct ~5,000M. Adjusted_Debt (2021) = 50,995 + 7,532 + 8,992 - 5,000 = **62,519M DKK** ## Step 5: 2021 Adjusted_Debt / Adjusted_EBITDA 62,519 / 24,296 = **2.57x** ## Step 6: 2021 FFO / Adjusted_Debt 18,931 / 62,519 = **0.303 (30.3%)** ## Step 7: Estimate 2022 Adjusted_EBITDA **Reported EBITDA (2022):** 32,057,000,000 DKK **Adjusted_EBITDA (2022) ≈ 32,057M DKK** ## Step 8: Estimate 2022 FFO Cash interest paid (2022): 8,548M DKK Cash taxes paid (2022): 1,263M DKK FFO = 32,057 - 8,548 - 1,263 = **22,246M DKK** Note: The large increase in interest paid is partly driven by derivative/hedging-related cash flows. Let me check - the finance costs jumped from 6,546 to 18,050, and interest paid from 3,985 to 8,548. This reflects higher debt and potentially derivative settlements. ## Step 9: Estimate 2022 Adjusted_Debt Balance sheet date: January 1, 2023 (end of 2022 fiscal year) - Long-term borrowings: 60,451M - Short-term borrowings: 2,830M - Total reported debt: 63,281M - Lease liabilities: 7,697 + 569 = 8,266M - Hybrid capital (50% debt): 19,793 × 50% = 9,897M - Cash deduction: 16,178M, deduct ~5,000M conservatively Adjusted_Debt (2022) = 63,281 + 8,266 + 9,897 - 5,000 = **76,444M DKK** ## Step 10: 2022 Adjusted_Debt / Adjusted_EBITDA 76,444 / 32,057 = **2.38x** ## Step 11: 2022 FFO / Adjusted_Debt 22,246 / 76,444 = **0.291 (29.1%)** ## Step 12: Classify the credit trend **Signal 1: Leverage change** 2.38x - 2.57x = **-0.19x** This is between -0.2x and 0x → **Stable** (just barely missing Improving threshold) **Signal 2: Cash-flow coverage change** 0.291 - 0.303 = **-0.012** This is between -0.03 and +0.03 → **Stable** **Combining signals:** Both signals indicate **Stable**. The leverage slightly improved (lower ratio) while FFO/Debt slightly declined, both within the Stable band. The significant increase in debt was offset by higher EBITDA, but higher interest costs slightly reduced FFO coverage. Stable