Investing.com -- Moody’s (NYSE:MCO) Ratings has downgraded the long-term issuer rating, the senior unsecured ratings, and the backed senior unsecured ratings of Orsted (CSE:ORSTED) A/S from Baa1 to Baa2. The downgrade also includes Orsted’s Baseline Credit Assessment (BCA), which fell from baa2 to baa3, and its hybrid notes ratings, which dropped from Baa3 to Ba1. Orsted Salg & Service A/S, a fully-owned trading subsidiary of Orsted, also saw a downgrade in its long-term issuer rating from Baa1 to Baa2. The outlook for both entities has been revised to stable from negative.
The downgrade reflects Moody’s expectation that Orsted’s current weak credit metrics will not improve to levels consistent with a Baa1 rating in the next two to three years. This is despite a likely improvement from 2024 levels. The downgrade takes into account Orsted’s limited flexibility to reduce its large capital expenditure before 2027, and the challenges in executing projected farmdowns due to higher interest rates and a gradual deterioration of Orsted’s track record in delivering construction projects on time and to budget.
On February 6, 2025, Orsted announced a new cut in their investment spending up to 2030, dropping the 35-38 GW target of installed capacity by 2030. This followed the recognition of new and significant impairments of DKK12.1 billion (EUR1.62 billion) over Q4 2024 and the subsequent step down of the CEO. The impairment reflects, among other things, cost and schedule overrun for the Sunrise Wind project.
Orsted has confirmed the rest of its strategic objectives established in February 2024, in particular a farmdown programme ranging from DKK70-80 billion over 2024-26. Orsted has already closed four disposals for a total cash considerations of DKK22 billion in 2024. However, more than 70% of the total came from the disposal of a minority stake in performing offshore assets in the UK.
The stable outlook reflects Moody’s expectation that Orsted will be able to make reliable progress on its construction and asset disposal programmes. This would allow Orsted to maintain a financial profile commensurate with the current Baa2 rating, namely Funds from operations (FFO)/net debt at least in the low 20s in percentage terms on a sustainable basis.
Orsted’s Baa2 rating continues to reflect the company’s position as the world’s leading offshore wind developer and its sound geographical diversification. However, the rating is constrained by an increase in cash leakage and higher volatility of cash generation, partially driven by a series of farmdowns, and the exposure to higher development and construction risks.
A rating upgrade is unlikely in the next two years given execution risks associated with the group’s remediation plan. Downward pressure on Orsted’s ratings could develop if the company’s financial profile deteriorates such that FFO/net debt remains below the low 20s in percentage terms; and/or its development projects face significant additional delays or incur significant cost overrun. A material reduction in the government’s ownership in Orsted’s capital would also likely result in a rating downgrade.
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