Rating Action: Moody's reviews eustream's, SPP-distribucia's and EPInfrastructure's ratings for downgradeGlobal Credit Research - 03 Mar 2022Frankfurt am Main, March 03, 2022 -- Moody's Investors Service ("Moody's")has today placed on review for downgrade the Baa3 senior unsecured debtand long-term issuer ratings of EP Infrastructure, a.s. (EPIF), the Baa2senior unsecured debt and long-term issuer ratings of eustream, a.s.(eustream) and SPP-distribucia a.s. (SPP-d), as well as the Baa2 backedsenior unsecured debt rating of the notes issued by SPP InfrastructureFinancing B.V. (SPP-IF) and guaranteed by eustream. The outlooks have beenchanged to ratings under review from stable for all issuers.RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OFTHE RATINGSThe review for downgrade of eustream's ratings is triggered by thecompany's exposure to the heightened geopolitical risk for gas transitfrom Russia (B3 review for downgrade) to Europe via Ukraine (B3 review fordowngrade), resulting from Russia's military assault of Ukraine whichstarted on 24 February 2022. The review for downgrade of SPP-d's andEPIF's ratings reflects the credit linkages of these companies witheustream.eustream, the owner and operator of the gas transmission system inSlovakia (A2 stable), is generating around 95% of its revenues fromtransporting gas that is primarily sourced from Russia to Central andSouthern Europe under long-term gas transit contracts. The Russian companyGazprom Export LLC, a 100% subsidiary of Gazprom, PJSC (Baa2 review fordowngrade), has the monopoly on pipeline gas exports from Russia. Thecompany's transit contracts are on a ship-or-pay basis, meaning thateustream receives most income from capacity payments and independent ofactual gas flows. The contract portfolio is highly concentrated in themajor Russian gas shipper.The placement of eustream's ratings on review for downgrade reflects thecompany's exposure to (1) the risk, stemming from the military conflict,of physical damage to the pipelines in Ukraine that ship gas to Slovakia;(2) the weakening of the credit profile of the major Russian gas shipper;and (3) the risk of negative credit implications for eustream from theadditional and more severe sanctions imposed on the Government of Russiaand certain Russian financial institutions by Western countries. Forexample, financial sector sanctions could disrupt cross-border paymentsassociated with Russia's gas exports.The review of SPP-d's ratings follows that of eustream. While the companyas owner and operator of the largest gas distribution network in Slovakiahas no direct exposure to Russia, it is a member of a cash poolingarrangement of the SPP Infrastructure a.s. (SPP-I) group that includeseustream. Given that there is no ring-fencing in place which wouldinsulate SPP-d's credit risk profile from that of SPP-I group, Moody'sviews SPP-d's credit quality as linked to SPP-I group entities andtherefore exposed to the risk of contagion from eustream.The review of EPIF's ratings follows that of eustream and SPP-d. EPIF is apure holding company and the ultimate parent of both eustream and SPP-d asEPIF owns 49% in these entities through a 49% stake in and managementcontrol of SPP-I. The Slovak government indirectly owns 51% of SPP-I.EPIF's debt is serviced by dividend income from its subsidiaries, thusexposing it to the evolution of the credit profiles of eustream and SPP-d.On a proportionate, consolidated basis, as per financial year 2021, EPIFestimated the share of EBITDA generated by eustream at 34%, with another38% coming from SPP-d and the power distribution business, 17% from thegas storage segment and around 12% from the heating infrastructureoperations.The reviews will focus on (1) the evolution and potential effect ofsanctions on eustream's, SPP-d's and EPIF's cash flows and liquidity, aswell as (2) the likelihood of potential shareholder support to thecompanies in the event of financial distress.eustreamGiven the review for downgrade, an upgrade of eustream's and SPP-IF'scurrent ratings is remote. The ratings could be confirmed with a negativeoutlook if eustream continues to receive due capacity payments under thelong-term transit contracts; and if there is a high likelihood that suchpayments will not be impeded by sanctions in the foreseeable future; or ifthe company obtains adequate support from its owners to offset anydeterioration of its current credit profile.eustream's ratings could be downgraded if capacity payments to the companywere to be discontinued or materially delayed, for example due tosanctions, resulting in material pressure on its liquidity and financialprofile; if the wider SPP Infrastructure group's ratio of funds fromoperations (FFO) to debt were to deteriorate below 25% on a sustainedbasis; or if there was a significant deterioration in eustream's customerportfolio risk profile without offsetting support from owners.SPP-distribuciaGiven the review for downgrade, an upgrade of SPP-d's current ratings isremote. The ratings could be confirmed with a negative outlook ifeustream's ratings were to be confirmed with a negative outlook; and ifthe company and the SPP Infrastructure group maintained a financialprofile commensurate with the current rating, taking into accountpotential cash requirements from eustream.SPP-d's ratings could be downgraded if eustream's ratings were to bedowngraded, unless there was tangible evidence that the shareholders wouldtake measures to maintain the current Baa2 ratings, such as sufficientring-fencing, that would insulate the credit quality of SPP-d from that ofeustream.EP InfrastructureGiven the review for downgrade, an upgrade of EPIF's current ratings isremote. The ratings could be confirmed with a negative outlook ifeustream's and SPP-d's ratings were confirmed and EPIF maintains itsratios aligned with the guidance for the current rating (see below); or incase the company's financial profile were to deteriorate, EPIF's ownerstake adequate measures to offset such deterioration to maintain thecurrent credit profile.EPIF's ratings could be downgraded if eustream's and SPP-d's ratings weredowngraded; or if the company's financial were to deteriorate such thatproportional net debt/EBITDA exceeded 4.5x, or funds from operations(FFO)/net debt on a fully consolidated basis were to drop significantlybelow 20% on a sustained basis.The principal methodology used in rating EP Infrastructure, a.s. andSPP-distribucia, a.s. was Regulated Electric and Gas Networks published inMarch 2017 and available athttps://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1059225.The principal methodology used in rating eustream, a.s. and SPPInfrastructure Financing B.V. was Natural Gas Pipelines published in July2018 and available athttps://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113727.Alternatively, please see the Rating Methodologies page on www.moodys.comfor a copy of these methodologies.eustream a.s., is the owner and operator of the natural gas transmissionand transit pipeline that runs through Slovakia. In the financial year2020/21 the company reported EUR622 million of revenues and EBITDA ofEUR544 million.SPP-distribucia a.s. is the monopoly provider of regulated gasdistribution services in Slovakia. In the first six months of financialyear 2020/21 the company reported EUR228 million of revenues and an EBITof EUR95 million.EP Infrastructure, a.s. is a Czech holding company with shareholdings incore Slovak gas and electricity infrastructure, including (1) eustreama.s.; (2) SPP-distribucia, a.s.; and (3) Stredoslovenska Energetika group.The group also holds stakes in regional gas storage entities SPP Storage,NAFTA, NAFTA Speicher and Pozagas, as well as a number of district heatinginfrastructure providers in the Czech Republic. EP Infrastructure, a.s. isultimately owned 69% by Energetický a prumyslový holding, a.s.and 31% by a number of specialist investment funds managed by MacquarieInfrastructure and Real Assets.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions andsensitivity analysis, see the sections Methodology Assumptions andSensitivity to Assumptions in the disclosure form. Moody's Rating Symbolsand Definitions can be found at:https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt orsecurity this announcement provides certain regulatory disclosures inrelation to each rating of a subsequently issued bond or note of the sameseries, category/class of debt, security or pursuant to a program forwhich the ratings are derived exclusively from existing ratings inaccordance with Moody's rating practices. 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For furtherinformation please see the ratings tab on the issuer/entity page for therespective issuer on www.moodys.com.For any affected securities or rated entities receiving direct creditsupport from the primary entity(ies) of this credit rating action, andwhose ratings may change as a result of this credit rating action, theassociated regulatory disclosures will be those of the guarantor entity.Exceptions to this approach exist for the following disclosures, ifapplicable to jurisdiction: Ancillary Services, Disclosure to ratedentity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designatedagent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy forDesignating and Assigning Unsolicited Credit Ratings available on itswebsite www.moodys.com.Regulatory disclosures contained in this press release apply to the creditrating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social andgovernance (ESG) risks in our credit analysis can be found athttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement wasissued by one of Moody's affiliates outside the UK and is endorsed byMoody's Investors Service Limited, One Canada Square, Canary Wharf, LondonE14 5FA under the law applicable to credit rating agencies in the UK.Further information on the UK endorsement status and on the Moody's officethat issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead ratinganalyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com foradditional regulatory disclosures for each credit rating.Mark RemshardtVice President - Senior AnalystInfrastructure Finance GroupMoody's Deutschland GmbHAn der Welle 5Frankfurt am Main 60322GermanyJOURNALISTS: 44 20 7772 5456Client Service: 44 20 7772 5454Paul MartySenior Vice President/ManagerInfrastructure Finance GroupJOURNALISTS: 44 20 7772 5456Client Service: 44 20 7772 5454Releasing Office:Moody's Deutschland GmbHAn der Welle 5Frankfurt am Main 60322GermanyJOURNALISTS: 44 20 7772 5456Client Service: 44 20 7772 5454© 2022 Moody's Corporation, Moody's Investors Service, Inc.,Moody's Analytics, Inc. and/or their licensors and affiliates(collectively, "MOODY'S"). 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