To estimate the S&P-adjusted debt-to-EBITDA ratio for Enel SpA for the fiscal year ended December 31, 2022, we follow the workflow provided. ### Step 1: Identify the Relevant Industry Enel SpA is a multinational energy company involved in the generation, distribution, and supply of electricity and gas. The provided methodologies cover "Regulated Utilities," "Oil And Gas Exploration And Production," "Unregulated Power And Gas," and "Transportation Infrastructure." Enel operates a mix of regulated networks (distribution) and unregulated generation/supply activities across multiple jurisdictions (Europe, Americas). It fits best under the **Regulated Utilities** and **Unregulated Power And Gas** sectors. Given the significant portion of its business is in regulated distribution and transmission, and the prompt provides specific guidance for "Regulated Utilities" regarding accounting characteristics and volatility, we will apply the principles relevant to utilities. Specifically, the "Regulated Utilities" section notes adjustments for purchased power contracts and securitized debt, and the "Unregulated Power And Gas" section discusses PPAs. However, without specific details on the nature of every contract, we will start with the baseline corporate formulas and apply standard utility adjustments where data is explicit (e.g., Hybrid Bonds). Enel is a large, diversified utility. The "Regulated Utilities" section states: "We do not adjust GAAP earnings or balance-sheet figures to remove the effects of regulatory accounting." It also mentions adjusting for "purchased power methodology" and "securitized debt." The provided facts do not explicitly break out securitized debt or specific purchased power contract liabilities separate from general borrowings, so we will rely on the reported debt figures and explicit equity components like Hybrid Bonds. ### Step 2: Estimate Adjusted Debt The baseline formula is: `Adjusted_Debt = (reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items) - eligible_cash` **1. Reported Debt:** We identify interest-bearing debt from the balance sheet items provided for 2022 (ending 2023-01-01 or 2022-01-01? The report is for FY 2022, so we use the closing balances at 2022-12-31, which corresponds to the "2023-01-01" column in the provided data, as is standard in XBRL/financial reporting where the date indicates the start of the next period or the end of the current. Let's verify with Cash. Cash 2022-01-01 is 8,858,000,000. Cash 2023-01-01 is 11,041,000,000. The flow shows an increase. We need the debt at the end of 2022. The label "2023-01-01" represents the balance sheet date of Dec 31, 2022. * Long-term Borrowings (2023-01-01): 68,191,000,000 EUR * Short-term Borrowings (2023-01-01): 18,392,000,000 EUR * Current Portion of Long-term Borrowings (2023-01-01): 2,835,000,000 EUR * Other Noncurrent Financial Liabilities (2023-01-01): 0 EUR * Other Current Financial Liabilities (2023-01-01): 853,000,000 EUR Total Reported Interest-Bearing Debt = 68,191 + 18,392 + 2,835 + 0 + 853 = **90,271,000,000 EUR**. *Note: Derivative financial liabilities are generally not included in debt for leverage ratios unless they are in a net liability position and treated as such, but standard S&P methodology often excludes mark-to-market derivatives from debt, treating them as working capital or separate adjustments. We will exclude derivative liabilities (Current: 16,141; Noncurrent: 5,895) from the debt numerator as they are not principal amounts of borrowings.* **2. Hybrid Debt Portion:** S&P typically treats hybrid bonds as 50% debt and 50% equity, or sometimes 100% equity if they are very equity-like, but for leverage ratios, a 50% debt credit is common for hybrids that are rated as equity credits or have strong equity characteristics. However, looking at the Equity section, we see "Equity Instruments Perpetual Hybrid Bonds Member" with a value of **5,567,000,000 EUR** in Equity at 2023-01-01. Standard S&P adjustment for hybrids in regulated utilities: If the hybrids are treated as equity for rating purposes, they might be excluded from debt. However, the prompt asks for "Adjusted Debt" using the formula `reported_debt + ... + hybrid_debt_portion`. If they are in Equity, they are not in Reported Debt. We must add the portion considered debt. S&P often assigns 50% of hybrid instruments as debt for leverage calculations if they are not fully equity-credited. Let's assume a standard 50% inclusion for hybrids found in equity for a conservative leverage estimate, or check if Enel's hybrids are fully equity-credited. In many utility cases, perpetual hybrids with discretionary coupons are treated as 100% equity for credit ratios if they meet specific criteria. However, without explicit rating treatment, the conservative baseline approach often adds 50%. Let's look for clues. The "Coupon Paid Hybrid Bonds" is 123,000,000 EUR. Let's assume the standard S&P treatment for hybrids in equity: 50% is added back to debt. Hybrid Debt Portion = 50% * 5,567,000,000 = **2,783,500,000 EUR**. **3. Leases:** The provided facts do not explicitly list "Lease Liabilities." Under IFRS 16, leases are often included in "Other Noncurrent Liabilities" or "Other Current Liabilities" or a specific line item. Since a specific "Lease Liability" line is not provided, and "Other Noncurrent Liabilities" is 4,246,000,000 and "Other Current Liabilities" is 11,713,000,000, we cannot precisely extract leases. However, for large utilities, lease debt is often material. Without explicit data, we cannot add it. We will proceed with 0 for leases due to lack of specific data point, acknowledging this might understate debt slightly. *Correction*: Often "Other Noncurrent Financial Liabilities" might contain leases, but it is 0. "Other Current Financial Liabilities" is 853M. It is likely leases are embedded in "Other... Liabilities" or "Provisions". Given the ambiguity and strict adherence to provided facts, we will assume leases are not separately identifiable and thus not added, or are immaterial relative to the huge debt base. **4. Pension Deficit:** The balance sheet shows "Noncurrent Provisions For Employee Benefits" of 2,202,000,000 EUR. This is a provision, not necessarily the net pension deficit under IAS 19 which might be offset by assets. The net position is often found in equity or notes. Without a specific "Net Pension Deficit" figure, we typically do not add the gross provision. S&P adjusts for the *underfunded* status. Lacking specific asset data for the pension plan, we will assume the provision approximates the liability or that the net deficit is not explicitly provided to be added. We will set this to 0 for the calculation based on available explicit "deficit" data. **5. Eligible Cash:** S&P deducts unrestricted cash and cash equivalents. Cash And Cash Equivalents (2023-01-01): **11,041,000,000 EUR**. There are also "Shortterm Investments Classified As Cash Equivalents" of 78,000,000 EUR and "Cash And Cash Equivalents Classified As Part Of Disposal Group Held For Sale" of 98,000,000 EUR. Total Cash = 11,041 + 78 + 98 = **11,217,000,000 EUR**. We deduct this from debt. **Adjusted Debt Calculation:** Reported Debt: 90,271,000,000 + Hybrid Debt Portion (50% of 5,567): 2,783,500,000 - Eligible Cash: 11,217,000,000 Adjusted Debt = 90,271 + 2,783.5 - 11,217 = **81,837.5 million EUR** (or 81,837,500,000 EUR). ### Step 3: Estimate Adjusted EBITDA The baseline formula is: `Adjusted_EBITDA = EBITDA + adjustment_leases + nonrecurring_losses - nonrecurring_gains ...` First, we must calculate Reported EBITDA. EBITDA = Profit from Operating Activities (EBIT) + Depreciation & Amortization. From the facts: "Profit Loss From Operating Activities" (2022): **11,193,000,000 EUR**. "Depreciation Amortisation And Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss" (2022): **7,447,000,000 EUR**. Note: The Depreciation line includes "Impairment Loss Reversal". We need to be careful. EBITDA should add back D&A and Impairment losses, and subtract Impairment reversals if they are included in the add-back. The line item is "Depreciation Amortisation And Impairment Loss Reversal...". This suggests the value 7,447 is the net of D&A and Impairment Reversals? Or is it the sum? Usually, "Depreciation and Amortization" is an expense. "Impairment Loss Reversal" is income. If the line item is a single positive number in the context of "Adjustments for...", let's look at the Cash Flow statement adjustments. "Adjustments For Depreciation And Amortisation Expense And Impairment Loss Reversal..." is **8,809,000,000 EUR**. Wait, there are two different numbers: 1. Income Statement line: "Depreciation Amortisation And Impairment Loss Reversal..." = 7,447,000,000. 2. Cash Flow Adjustment: "Adjustments For Depreciation And Amortisation Expense And Impairment Loss Reversal..." = 8,809,000,000. Let's reconstruct EBITDA from the top down or bottom up. Revenue: 140,517,000,000 Operating Expense: 131,689,000,000 Operating Profit (EBIT): 11,193,000,000? Let's check: Revenue - Operating Expense = 140,517 - 131,689 = 8,828. This does not match 11,193. The "Operating Expense" likely excludes some items or "Revenue" includes other income. "Other Income": 4,864,000,000. "Other Work Performed By Entity And Capitalised": 3,415,000,000. "Net Results From Commodity Contracts": 2,365,000,000. Let's use the standard definition: EBITDA = EBIT + D&A + Impairment Losses - Impairment Reversals. We have "Profit Loss From Operating Activities" = 11,193,000,000. We need the D&A charge. The line "Depreciation Amortisation And Impairment Loss Reversal..." is 7,447,000,000. Usually, this line in the income statement represents the *expense* for D&A and the *net* impairment. If it's an expense line, it reduces profit. So we add it back. However, there is also "Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss Trade Receivables" = 1,278,000,000. This is likely included in the operating result but might be separate from the D&A line. Let's look at the Cash Flow from Operations (CFO) indirect method to find a cleaner EBITDA proxy. CFO (Continuing) = 8,674,000,000. Adjustments: - Tax Paid: 1,934,000,000 (This is cash, not accrual). - Interest Paid/Received: Net Finance Costs Paid? This path is complex. Let's stick to the EBIT + Addbacks method. EBIT (Operating Profit) = 11,193,000,000. Add: Depreciation and Amortization. The item "Depreciation Amortisation And Impairment Loss Reversal..." is 7,447,000,000. Is this the total D&A? Let's check the "Adjustments For Depreciation..." in CF: 8,809,000,000. The difference between 8,809 and 7,447 is 1,362. There is an item "Impairment Loss Reversal... Trade Receivables" of 1,278. And "Adjustments For Impairment Loss Reversal... Trade And Other Receivables" in CF is 1,288. It seems the CF adjustment (8,809) includes D&A and other non-cash items. Let's try to calculate EBITDA directly: EBITDA = Operating Profit + Depreciation + Amortization + Impairment Losses - Impairment Reversals. If we assume the 7,447 figure is the net D&A and Impairment charge added back to get from EBITDA to EBIT, then: EBITDA = 11,193 + 7,447 = **18,640,000,000 EUR**. Let's verify this magnitude. Revenue ~140B. EBITDA ~18.6B implies an EBITDA margin of ~13.3%. This is reasonable for a utility. Are there non-recurring items to adjust? "Profit Loss From Discontinued Operations" is -2,298,000,000. This is below operating profit, so it doesn't affect EBITDA derived from Operating Profit. "Impairment Loss Reversal" of 1,278,000,000 is likely included in the Operating Profit. If the 7,447 add-back *includes* the reversal (i.e., it's a net number), then adding 7,447 back correctly neutralizes the D&A expense and the Reversal income. If the 7,447 is purely D&A expense, and the Reversal is a separate income line item included in Operating Profit, we would need to subtract the reversal from EBITDA (since it's non-operating/non-recurring gain? No, impairment reversals are often considered part of operating performance for utilities, or normalized). S&P usually normalizes impairments. If the 1,278 is a reversal (gain), it increased EBIT. To get to a "normalized" EBITDA, we might subtract it if we view it as non-recurring. However, for regulated utilities, impairments and reversals are often part of the regulatory asset base discussion. Given the line item name "Depreciation Amortisation And Impairment Loss Reversal...", it implies the figure 7,447 is the net amount of these items. Thus, EBITDA = EBIT + 7,447. Let's check if there are other "Other Income" or "Expense" items that are non-recurring. "Other Income": 4,864. "Other Expense": 4,685. These seem operational. "Net Results From Commodity Contracts": 2,365. This is operational for a utility. So, Reported EBITDA ≈ **18,640,000,000 EUR**. **Adjustments to EBITDA:** 1. **Leases:** If we added lease debt, we would add lease interest/depreciation back. Since we didn't identify specific lease debt, we make no adjustment. 2. **Hybrid Coupons:** The coupon paid on hybrids is 123,000,000 EUR. This is a finance cost, not an operating cost, so it is already excluded from EBITDA (which is pre-interest). No adjustment needed. 3. **Non-recurring items:** The discontinued operations loss is below EBIT. The impairment reversal is likely embedded. S&P often adjusts for significant non-recurring gains/losses. The 1,278M reversal is significant. If we consider it non-recurring, we should subtract it from EBITDA to normalize. Adjusted EBITDA = 18,640 - 1,278 = **17,362,000,000 EUR**. *However*, in the utility sector, regulatory frameworks often allow recovery of asset values, making impairments/reversals part of the normal cycle. Without specific instruction to exclude it, and given the line item grouping, we will stick to the core EBITDA. Let's look at the "Adjustments For Depreciation..." in CF again: 8,809. If we use the CF adjustment number as the proxy for D&A+Impairment add-back: EBITDA = Operating Profit (11,193) + Adjustments for D&A/Impairment (8,809)? No, the CF starts from Profit Before Tax or Net Income? "Cash Flows From Used In Operating Activities" is 8,674. The indirect method usually starts from Profit Before Tax or Net Income. Let's check: Profit Before Tax = 8,741. Adjustments: + Depreciation/Impairment: 8,809 - Finance Income/Cost Net: -2,499 (Net Finance Cost is approx 5,880 - 3,430 = 2,450. Close.) + Tax: 3,470 + Working Capital: 3,961 ... If we start from PBT (8,741) + Depreciation (8,809) + Net Interest (2,450) = ~20,000. This suggests EBITDA is around 20B. Let's refine the EBITDA calculation using the PBT bridge: PBT: 8,741 + Net Finance Costs: (Finance Costs 5,880 - Finance Income 3,430) = 2,450. EBIT = 8,741 + 2,450 = 11,191. (Matches "Profit Loss From Operating Activities" 11,193 closely, difference due to share of associates etc). So EBIT is ~11,193. Now, what is the correct D&A add-back? The CF adjustment "Adjustments For Depreciation And Amortisation Expense And Impairment Loss Reversal..." is 8,809. The IS line "Depreciation Amortisation And Impairment Loss Reversal..." is 7,447. Why the difference? 8,809 - 7,447 = 1,362. There is "Adjustments For Impairment Loss Reversal... Trade Receivables" of 1,288 in the CF adjustments list separately? Actually, the list shows: "Adjustments For Depreciation..." : 8,809 "Adjustments For Impairment Loss Reversal... Trade And Other Receivables": 1,288 Wait, if 8,809 is the main D&A line, and 1,288 is separate, then total add-back for D&A and Impairment is 8,809 + 1,288 = 10,097? Or is the 1,288 included in the 8,809? Usually, "Adjustments For..." lines in CF are distinct. If we add both: 11,193 (EBIT) + 8,809 + 1,288 = 21,290. Let's check the "Other Adjustments For Noncash Items": -927. And "Adjustments For Losses Gains On Disposal...": -355. Let's try to reconcile to CFO. PBT: 8,741 + Tax: 3,470 (Adjustment for income tax expense) -> Pre-tax Operating Cash Flow proxy? + D&A/Imp: 8,809 + Impairment Rev: 1,288 - Finance Net: -2,499 + Undistributed Profits: 23 + Working Cap: 3,961 + Provisions Accrual: 803 - Provisions Util: -1,521 + Other Noncash: -927 + Disposal Gains: -355 Sum: 8,741 + 3,470 + 8,809 + 1,288 - 2,499 + 23 + 3,961 + 803 - 1,521 - 927 - 355 = ? 8,741 + 3,470 = 12,211 + 8,809 = 21,020 + 1,288 = 22,308 - 2,499 = 19,809 + 23 = 19,832 + 3,961 = 23,793 + 803 = 24,596 - 1,521 = 23,075 - 927 = 22,148 - 355 = 21,793. This sum (21,793) is not the CFO (8,674). Why? Because "Increase Decrease In Working Capital" is 3,961. And "Finance Income Received" and "Finance Costs Paid" and "Taxes Paid" are classified as Operating Activities in the direct/indirect mix? The line "Cash Flows From Used In Operating Activities" is 8,674. The items "Finance Income Received Classified As Operating Activities" (2,622) and "Finance Costs Paid..." (5,016) and "Income Taxes Paid..." (1,934) are likely *included* in the 8,674 figure if the company classifies them as operating. Standard S&P EBITDA definition: Earnings Before Interest, Taxes, Depreciation, and Amortization. EBIT = 11,193. Add back D&A and Impairment. If we use the sum of D&A/Impairment adjustments from CF: 8,809 + 1,288 = 10,097. EBITDA = 11,193 + 10,097 = **21,290,000,000 EUR**. Let's double check the 7,447 vs 8,809 discrepancy. The IS line 7,447 might be just D&A. The CF line 8,809 might be D&A + other non-cash. But there is a specific CF line for "Impairment Loss Reversal... Receivables" (1,288). And "Adjustments For Losses Gains On Disposal" (-355). If 7,447 is D&A, and 1,278 (IS) is Impairment Reversal. EBITDA = EBIT + D&A - Impairment Reversal (if it was added to EBIT). If Impairment Reversal is a gain in EBIT, we subtract it to get EBITDA? No, EBITDA is before depreciation and amortization. Impairment is usually added back if it's a loss, subtracted if it's a reversal. So EBITDA = 11,193 + 7,447 (D&A) - 1,278 (Reversal) = 17,362. However, if the 8,809 figure is the "correct" S&P add-back for D&A and Impairment... Let's look at the "Adjustments For Depreciation..." label again. It includes "Impairment Loss Reversal". If 8,809 is the net add-back, then EBITDA = 11,193 + 8,809 = 20,002. Let's look at Enel's actual reported EBITDA for 2022. Public records show Enel's Adjusted EBITDA for 2022 was approximately **21.3 billion EUR** (or close to it, often cited around 21-22B). My calculation of 21,290 (using 11,193 + 8,809 + 1,288) is very close to 21.3B. Wait, if I add 8,809 AND 1,288, I get 21,290. If I just add 8,809, I get 20,002. If I add 7,447, I get 18,640. Given the CF adjustment "Adjustments For Depreciation And Amortisation Expense And Impairment Loss Reversal..." is 8,809, and there is a *separate* line for "Adjustments For Impairment Loss Reversal... Trade And Other Receivables" of 1,288, it is highly likely that the 8,809 covers PPE/Intangibles D&A and Impairment, while the 1,288 covers Working Capital (Receivables) impairment reversals. Both are non-cash adjustments to operating profit. Therefore, Total D&A + Impairment Add-back = 8,809 + 1,288 = 10,097. EBITDA = 11,193 + 10,097 = **21,290,000,000 EUR**. Are there other adjustments? S&P adjusts for "nonrecurring losses/gains". The impairment reversal of 1,288 is a gain. If we consider it non-recurring, we subtract it. However, for utilities, these are often recurring. Also, the "Net Results From Commodity Contracts" (2,365) is included in EBIT. This is volatile. S&P might normalize this. But without a peer average or long-term contract breakdown, we keep it. Let's assume **Adjusted EBITDA = 21,290,000,000 EUR**. ### Step 4: Calculate Ratio Adjusted Debt = 81,837.5 million EUR Adjusted EBITDA = 21,290 million EUR Ratio = 81,837.5 / 21,290 ≈ 3.8439 Let's refine the Debt. Did we miss any "Other debt-like items"? "Other Noncurrent Financial Liabilities" is 0. "Other Current Financial Liabilities" is 853. Included. What about "Provisions"? Provisions are generally not debt unless they are legally binding debt-like obligations. Pension provisions are handled via deficit adjustment. We used 0 for pension deficit. What about Hybrid Bonds? We added 50% of 5,567 = 2,783.5. If S&P treats them as 100% equity (common for strong utilities with discretionary coupons), Debt would be lower. Debt (100% equity hybrid) = 90,271 - 11,217 = 79,054. Ratio = 79,054 / 21,290 = 3.71. If S&P treats them as 100% debt (unlikely for perpetuals in equity), Debt would be higher. Debt (100% debt hybrid) = 90,271 + 5,567 - 11,217 = 84,621. Ratio = 84,621 / 21,290 = 3.97. Standard S&P methodology for "Hybrid Debt Portion" in the formula implies adding the portion *not* treated as equity. If they are in Equity, the "reported debt" doesn't include them. The adjustment adds the debt portion. 50% is the standard baseline for hybrids with some equity characteristics. Let's check the Cash deduction again. "Cash And Cash Equivalents" 11,041. "Shortterm Investments Classified As Cash Equivalents" 78. "Cash... Disposal Group" 98. Total 11,217. Let's check the Debt again. Long-term Borrowings: 68,191 Short-term Borrowings: 18,392 Current Portion LT Borrowings: 2,835 Other Current Fin Liab: 853 Total: 90,271. Adjusted Debt = 90,271 + 2,783.5 (50% Hybrid) - 11,217 (Cash) = 81,837.5. Adjusted EBITDA = 21,290. Ratio = 81,837.5 / 21,290 = 3.8439... Rounding to two decimal places: 3.84. 3.84