S&P Global Ratings today said that Italian gas transmission operator SNAM SpA's (BBB+/Negative/A-2) 2019 results are slightly above our expectations. Snam expects limited financial impact from COVID-19 and in our view remains well positioned to retain its current 'a-' stand-alone credit profile (SACP), which underlies our 'BBB+' issuer credit rating.
We expect Snam's adjusted funds from operations (FFO) to debt to remain above our 12% trigger for a downward revision of the SACP over its 2020-2023 business plan horizon.
Reported EBITDA increased 3.5% year on year to €2.169 billion, slightly higher than our previous internal expectation of €2.150 billion, supported by the regulated transmission business' performance, and higher revenue in the unregulated businesses. EBITDA also benefitted from more than €50 million of accumulated savings since 2016. Reported net debt increased by about €400 million to €11.923 billion, in line with our base case. The increase comes after the expected acceleration in capital spending (capex) in the gas transmission business, with a negative free cash flow after capex and dividends of about €300 million. Snam continues to focus on reducing the cost of debt; it decreased to 1.1% in 2019 compared with 1.5% in 2018. We expect Snam to report 2019 adjusted FFO to debt well above our 12% trigger for revising down the SACP.
Snam remains committed to its 2019-2023 business plan. The company is not able to reliably predict the impact of COVID-19, but currently expects such impact to be limited. We are monitoring the evolution of the situation closely, especially any potential increased political risk in Italy. In addition, we think that Snam could also be affected by:
At the same time, Snam has a comfortable liquidity position with €3.2 billion available through committed undrawn credit lines, of which €2 billion matures in 2023 and €1.2 billion in 2024, as well as €3 billion of cash that covers debt maturities beyond 2023.
Our 'BBB+' issuer credit rating on Snam is capped at one notch above the unsolicited sovereign rating on Italy because we consider Snam to be a government-related entity.
S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak in June or August, and we are using this assumption in assessing the economic and credit implications of the pandemic. We believe measures to contain COVID-19 have pushed the global economy into recession and could cause a surge of defaults among nonfinancial corporate borrowers (see "COVID-19 Macroeconomic Update: The Global Recession Is Here And Now" and "COVID-19 Credit Update: The Sudden Economic Stop Will Bring Intense Credit Pressure," published on March 17, 2020). As the situation evolves, we will update our assumptions and estimates accordingly.
