Fitch revises Orsted’s outlook to negative amid US project challenges

Investing.com -- Fitch Ratings has changed Orsted A/S’s outlook to negative from stable while affirming its Long-Term Issuer Default Rating at ’BBB’.

The outlook revision reflects deteriorating conditions in the US market, particularly following a stop-work order on Orsted’s Revolution Wind plant. The rating agency noted that the reasons behind this order remain unclear, and a similar order affecting the Sunrise Wind project cannot be ruled out.

The full impact of these US business challenges on Orsted’s financial profile is difficult to quantify and could pressure credit metrics from 2027, according to Fitch.

Revolution Wind, which is 80% complete and jointly owned by Orsted (50%) and Blackrock (50%), requires about DKK5 billion in remaining investment from Orsted. The Sunrise Wind project, fully owned by Orsted, is 35% complete with approximately DKK40 billion in residual investments needed.

Despite these challenges, Fitch affirmed Orsted’s rating based on several positive factors, including the planned DKK60 billion rights issue expected in October. Over 60% of shareholders have expressed support for this capital raise, which should provide significant financial headroom through 2025-2026.

The rating agency expects funds from operations net leverage to remain below 3.0x in the next two years, assuming the rights issue proceeds as planned and asset disposals meet management expectations.

Orsted’s ongoing disposal plans include selling a 50% stake in Hornsea 3 (currently 10% complete) and Greater Changhua 2a and 2b (approximately 55% complete), which should reduce construction risk and support the company’s financial position.

The company’s business profile remains strong, supported by high-quality contracted assets. About 80% of Orsted’s revenues are contracted, with most protected from inflation, and its renewable energy production has an average remaining contract lifetime exceeding 10 years for offshore wind.

Fitch’s rating case assumes renewable generation will increase to 44 terawatt hours by 2027 from 34 terawatt hours in 2024, with EBITDA growing to DKK29 billion by 2027 from DKK23 billion in 2024.

The agency also factored in DKK10 billion in additional costs for 2025-2026 related to US business challenges as a conservative buffer, covering potential standby costs, litigation, and other effects.

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