1. **Identify the relevant industry** TenneT Holding B.V. is a transmission system operator (TSO), an electricity national industry and utility. Based on the sector description, it falls under **Regulated Utilities**. 2. **Estimate 2021 "Adjusted_EBITDA"** * **Reported EBITDA:** The financial statements don't directly provide EBITDA. We can reconstruct it from the income statement items. Revenue: 5,524,000,000 EUR Operating Expense: 5,861,000,000 EUR Other Gains/Losses: -4,000,000 EUR Share of Profit/Loss of JV/Associates: 62,000,000 EUR Profit/Loss from Operating Activities: -275,000,000 EUR Depreciation & Amortisation (from Operating Expense breakdown): 1,165,000,000 EUR Reported EBITDA = Profit/Loss from Operating Activities + Depreciation & Amortisation = -275,000,000 + 1,165,000,000 = 890,000,000 EUR. * **Leases:** Depreciation and Amortisation includes depreciation on Right-of-use assets. The cash payment for leases is captured below the EBITDA line (in financing activities). Under S&P methodology, we add back the lease depreciation to get an EBITDA before lease costs, which is Adjusted EBITDA. Actually, the standard formula `Adjusted_EBITDA = Reported_EBITDA + operating_lease_expense`. In this case, Depreciation on Right-of-use Assets is not separately disclosed, but the total D&A is 1,165,000,000 EUR. We will assume the reported EBITDA calculation above is a starting point. The lease payments are 156,000,000 EUR. S&P standard adjustment: `Adjusted_EBITDA = EBITDA + lease_payments`. (Alternatively, if lease depreciation is known, add it back. We'll use lease payments as a proxy for the operating lease expense adjustment since the exact operating lease expense isn't broken out). Let's check the cash flow statement: "Payments Of Lease Liabilities Classified As Financing Activities" = 156,000,000 EUR. This is the principal repayment portion. The interest portion is not easily separated. However, for operating leases, S&P usually adds back the entire lease expense. We'll use the total lease payment (or change in lease liability + depreciation) if possible. Let's use the lease liability data. Noncurrent Lease Liabilities: 235,000,000 (2022-01-01) vs 153,000,000 (implied for 2021-01-01 from 235 - (net change)? Not enough data. Let's use the simple approach: TenneT reports under IFRS 16. The lease expense is included in operating costs (depreciation and interest). We will add back the lease payments for financing activities (221,000,000 in 2022, 156,000,000 in 2021) to EBITDA as a standard S&P adjustment. Adjusted_EBITDA (2021) = 890,000,000 + 156,000,000 = 1,046,000,000 EUR. * **Non-recurring items:** Other Gains Losses (2021): -4,000,000 EUR. This is likely a non-recurring loss. We add back non-recurring losses. Adjusted_EBITDA (2021) = 1,046,000,000 + 4,000,000 = 1,050,000,000 EUR. * **Pension adjustments:** No explicit breakdown of pension interest cost vs service cost, but we assume the service cost is already expensed in operating and the interest cost is in finance costs. No further adjustment needed for EBITDA based on provided data. * **JV adjustments:** Share of profit/loss is 62,000,000 EUR. This is included in operating profit. We typically deduct the proportional JV EBITDA and add back dividends. Dividends received = 56,000,000 EUR. JV EBITDA is not directly given. We'll assume the share of profit + D&A is proportional EBITDA. We'll keep this simple and add the dividends received back, but deduct the equity income? No, standard S&P: deduct equity income, add dividends received. Adjusted_EBITDA (2021) = 1,050,000,000 - 62,000,000 + 56,000,000 = 1,044,000,000 EUR. * Let's refine using the cash flow statement: "Adjustments For Depreciation And Amortisation Expense" = 1,165,000,000 EUR. "Other Adjustments For Noncash Items" = 1,101,000,000 EUR. (This includes the Eeg working capital adjustments, which are non-cash? No, Eeg working capital is separated). Let's trust the P&L reconstruction. Adjusted_EBITDA (2021) = 1,044,000,000 EUR. 3. **Estimate 2021 "FFO"** * Formula: `FFO = Adjusted_EBITDA - cash_interest - cash_taxes` * Adjusted_EBITDA (2021): 1,044,000,000 EUR * Cash Interest Paid: "Interest Paid Classified As Financing Activities" (2021): 174,000,000 EUR. * Cash Taxes Paid: "Income Taxes Paid Refund Classified As Operating Activities" (2021): 246,000,000 EUR. * FFO (2021) = 1,044,000,000 - 174,000,000 - 246,000,000 = 624,000,000 EUR. 4. **Estimate 2021 "Adjusted_Debt"** * Formula: `Adjusted_Debt = reported_debt + leases + pension_deficit + hybrid_debt_portion + other_debt_like_items - eligible_cash` * Reported Debt (Short-term + Long-term borrowings): 1,339,000,000 (Short-term) + 12,366,000,000 (Long-term) = 13,705,000,000 EUR. * Leases: Noncurrent Lease Liabilities: 235,000,000 EUR. Current Lease Liabilities: 169,000,000 EUR. Total Leases: 404,000,000 EUR. * Pension Deficit: "Noncurrent Recognised Liabilities Defined Benefit Plan": 351,000,000 EUR. * Hybrid Capital: 50% of Hybrid Capital is treated as debt. Hybrid Capital = 2,125,000,000 EUR. Debt portion = 1,062,500,000 EUR. * Eligible Cash: "Cash And Cash Equivalents" (2022-01-01): 3,204,000,000 EUR. (Standardly capped at a portion, but we'll use the full amount as no explicit cap calculation is required here). * Other debt-like items: "Other Noncurrent Financial Liabilities": 183,000,000 EUR. * Adjusted Debt (2021) = 13,705,000,000 + 404,000,000 + 351,000,000 + 1,062,500,000 + 183,000,000 - 3,204,000,000 = 12,501,500,000 EUR. 5. **Calculate 2021 "Adjusted_Debt / Adjusted_EBITDA"** * 12,501,500,000 / 1,044,000,000 = 11.97x. 6. **Calculate 2021 "FFO / Adjusted_Debt"** * 624,000,000 / 12,501,500,000 = 0.05 (4.99%). 7. **Estimate 2022 "Adjusted_EBITDA"** * Revenue: 8,299,000,000 EUR * Profit/Loss from Operating Activities: -976,000,000 EUR * Depreciation & Amortisation Expense: 1,233,000,000 EUR * Reported EBITDA = -976,000,000 + 1,233,000,000 = 257,000,000 EUR. * Lease Payments: "Payments Of Lease Liabilities Classified As Financing Activities" (2022): 221,000,000 EUR. * Non-recurring items: Other Gains Losses (2022) = -38,000,000 EUR (add back). * JV adjustments: Share of profit/loss = 120,000,000 EUR (deduct). Dividends received = 92,000,000 EUR (add back). * Adjusted_EBITDA (2022) = 257,000,000 + 221,000,000 + 38,000,000 - 120,000,000 + 92,000,000 = 488,000,000 EUR. 8. **Estimate 2022 "FFO"** * Adjusted_EBITDA (2022): 488,000,000 EUR * Cash Interest Paid: "Interest Paid Classified As Financing Activities" (2022): 202,000,000 EUR. * Cash Taxes Paid: "Income Taxes Paid Refund Classified As Operating Activities" (2022): 231,000,000 EUR. (Note: the P&L has a tax benefit of -354,000,000 EUR, but cash taxes paid are 231,000,000 EUR. This suggests deferred taxes). * FFO (2022) = 488,000,000 - 202,000,000 - 231,000,000 = 55,000,000 EUR. 9. **Estimate 2022 "Adjusted_Debt"** * Reported Debt: 709,000,000 (Short-term) + 19,006,000,000 (Long-term) = 19,715,000,000 EUR. * Leases: Noncurrent Lease Liabilities 574,000,000 + Current Lease Liabilities 155,000,000 = 729,000,000 EUR. * Pension Deficit: Noncurrent Recognised Liabilities Defined Benefit Plan: 174,000,000 EUR. * Hybrid Capital: 2,125,000,000 EUR. Debt portion = 1,062,500,000 EUR. * Other debt-like items: "Other Noncurrent Financial Liabilities": 185,000,000 EUR. * Eligible Cash: Cash And Cash Equivalents: 6,547,000,000 EUR. * Adjusted Debt (2022) = 19,715,000,000 + 729,000,000 + 174,000,000 + 1,062,500,000 + 185,000,000 - 6,547,000,000 = 15,318,500,000 EUR. 10. **Calculate 2022 "Adjusted_Debt / Adjusted_EBITDA"** * 15,318,500,000 / 488,000,000 = 31.39x. 11. **Calculate 2022 "FFO / Adjusted_Debt"** * 55,000,000 / 15,318,500,000 = 0.00 (0.36%). 12. **Classify credit trend** * **Signal 1: Leverage (Debt/EBITDA)** * 2021: 11.97x * 2022: 31.39x * Change: 31.39 - 11.97 = +19.42x. * Since +19.42x ≥ +0.2x, the signal is **Deteriorating**. * **Signal 2: Cash-flow coverage (FFO/Debt)** * 2021: 4.99% (0.05) * 2022: 0.36% (0.00) * Change: 0.00 - 0.05 = -0.05. * Since -0.05 ≤ -0.03, the signal is **Deteriorating**. * **Combining signals:** Both signals agree on **Deteriorating**. Deteriorating