Step 1: Identify the relevant industry Based on the facts provided, IBERDROLA SA is a major energy company involved in electricity generation and distribution. According to the S&P methodologies provided, IBERDROLA SA best fits into the "Regulated Utilities" sector. The methodology specifies that debt-like obligations for purchased power contracts and lease adjustments should be considered. However, since we lack specific purchased power contract details, we will use the baseline formulas and make standard adjustments for leases and pension deficits. 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, "Beneficio Bruto De Explotacion Ebitda" for 2021 is 12,006,000,000 EUR. We assume no specific nonrecurring or proportional JV adjustments are quantifiable, but we adjust for leases. Given the Right-of-use Assets (2,260,000,000 EUR) and Noncurrent Lease Liabilities (2,253,000,000 EUR) + Current Lease Liabilities (158,000,000 EUR) ≈ 2,411,000,000 EUR. The lease interest expense adjustment is typically calculated using the lease liability multiplied by an estimated interest rate (typically 5-6%). However, standard S&P adjustments often add back the full lease expense to EBITDA and then subtract the interest portion in the cash interest step, or simply adjust the EBITDA by adding the lease depreciation and interest. Since we don't have the exact lease expense breakdown, we will use a 5% interest rate on the lease liability to estimate the interest component for the FFO calculation later, and for EBITDA, the reported EBITDA generally captures operating lease expenses already. Under IFRS 16, EBITDA already excludes lease depreciation and interest, so we must add them back to reconstruct the EBITDA. Estimated lease interest (5% of ~2,411M) ≈ 120.55M EUR. Lease depreciation ≈ RoU asset depreciation (~2,260M / 10 = 226M EUR). Reconstructed EBITDA = 12,006M + 226M (dep) + 120.55M (int) ≈ 12,352.55M EUR. For simplicity and consistency with available data, let's use the Reported EBITDA and add an estimated lease adjustment: Adjusted_EBITDA 2021 = 12,006,000,000 + 250,000,000 (estimated lease add-back) = 12,256,000,000 EUR. Step 3: Estimate 2021 FFO Formula: FFO = Adjusted_EBITDA - cash_interest - cash_taxes Cash interest 2021: From the cash flow statement, interest paid on debt = 741,000,000 EUR, interest on leases = 49,000,000 EUR, interest on perpetual subordinated obligations = 94,000,000 EUR. Total = 884,000,000 EUR. Adjusted for lease interest (which wasn't in reported EBITDA but is a cash outflow): 884,000,000 EUR. Cash taxes 2021: Income taxes paid = 832,000,000 EUR. FFO 2021 = 12,256,000,000 - 884,000,000 - 832,000,000 = 10,540,000,000 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 Reported debt 2021: Noncurrent financial liabilities (debt) 31,179,000,000 EUR + Current financial liabilities (debt) 9,984,000,000 EUR = 41,163,000,000 EUR. Hybrids (treated as debt under S&P unless equity-like): 525,000,000 EUR (noncurrent) + 100,000,000 EUR (current) = 625,000,000 EUR. Leases 2021: 2,253,000,000 EUR (noncurrent) + 158,000,000 EUR (current) = 2,411,000,000 EUR. Pension deficit 2021: Noncurrent provisions for employee benefits 1,592,000,000 EUR + Current provisions for employee benefits 27,000,000 EUR = 1,619,000,000 EUR (assumed largely underfunded pension). Total Debt-like items = 41,163,000,000 + 625,000,000 + 2,411,000,000 + 1,619,000,000 = 45,818,000,000 EUR. Eligible cash 2021: Cash and Cash Equivalents = 4,033,000,000 EUR. Adjusted_Debt 2021 = 45,818,000,000 - 4,033,000,000 = 41,785,000,000 EUR. Step 5: Calculate 2021 Adjusted_Debt / Adjusted_EBITDA Ratio = 41,785,000,000 / 12,256,000,000 = 3.41x Step 6: Calculate 2021 FFO / Adjusted_Debt Ratio = 10,540,000,000 / 41,785,000,000 = 25.22% (or 0.2522) Step 7: Estimate 2022 Adjusted_EBITDA EBITDA 2022 = 13,228,000,000 EUR. Adding estimated lease adjustment of 280,000,000 EUR (due to increased RoU assets and liabilities). Adjusted_EBITDA 2022 = 13,228,000,000 + 280,000,000 = 13,508,000,000 EUR. Step 8: Estimate 2022 FFO Cash interest 2022: Interest paid on debt = 1,495,000,000 EUR, interest on leases = 61,000,000 EUR, interest on perpetuals = 169,000,000 EUR. Total = 1,725,000,000 EUR. Cash taxes 2022: Income taxes paid = 1,055,000,000 EUR. FFO 2022 = 13,508,000,000 - 1,725,000,000 - 1,055,000,000 = 10,728,000,000 EUR. Step 9: Estimate 2022 Adjusted_Debt Reported debt 2022: 36,129,000,000 EUR + 10,458,000,000 EUR = 46,587,000,000 EUR. Hybrids 2022: 576,000,000 EUR + 87,000,000 EUR = 663,000,000 EUR. Leases 2022: 2,287,000,000 EUR + 151,000,000 EUR = 2,438,000,000 EUR. Pension deficit 2022: 1,226,000,000 EUR + 42,000,000 EUR = 1,268,000,000 EUR. Total Debt-like items = 46,587,000,000 + 663,000,000 + 2,438,000,000 + 1,268,000,000 = 50,956,000,000 EUR. Eligible cash 2022: Cash and Cash Equivalents = 4,608,000,000 EUR. Adjusted_Debt 2022 = 50,956,000,000 - 4,608,000,000 = 46,348,000,000 EUR. Step 10: Calculate 2022 Adjusted_Debt / Adjusted_EBITDA Ratio = 46,348,000,000 / 13,508,000,000 = 3.43x Step 11: Calculate 2022 FFO / Adjusted_Debt Ratio = 10,728,000,000 / 46,348,000,000 = 23.14% (or 0.2314) Step 12: Classify the year-on-year credit trend Signal 1: Leverage change = 3.43x - 3.41x = +0.02x. Thresholds: ≤ -0.2x (Improving), between -0.2x and +0.2x (Stable), ≥ +0.2x (Deteriorating). Result: Stable (within -0.2x to +0.2x). Signal 2: Cash-flow coverage change = 0.2314 - 0.2522 = -0.0208 (-2.08 p.p.). Thresholds: ≥ +0.03 (Improving), between -0.03 and +0.03 (Stable), ≤ -0.03 (Deteriorating). Result: Stable (within -0.03 to +0.03). Both signals are Stable. Therefore, the combined classification is Stable. Stable