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���������ֳ� - Warsaw - 09 Feb 2021: ���������ֳ� has assigned Orsted A/S's (BBB+/Stable) proposed callable subordinated capital securities, denominated in euro and sterling, an expected rating of 'BBB-(EXP)'. The proposed securities qualify for 50% equity credit. The final rating is contingent on the receipt of final documents conforming materially to the preliminary documentation reviewed.

The purpose of the proposed notes is to increase Orsted's total amount of outstanding hybrid capital and refinance part of its EUR700 million 6.25% hybrid capital securities issued in 2013, which are callable at par in June 2023. Issuance proceeds will be invested in renewable energy projects, in accordance with Orsted's Green Finance Framework.

The hybrid rating and assignment of equity credit are based on ���������ֳ�'s "Corporate Hybrids Treatment and Notching Criteria".

Key Rating Drivers

KEY RATING DRIVERS FOR PROPOSED HYBRID NOTES

Ratings Reflect Deep Subordination: The proposed notes are rated two notches below Orsted's Long-Term Issuer Default Rating given their deep subordination and, consequently, lower recovery prospects in a liquidation or bankruptcy scenario relative to senior obligations. The proposed notes only rank senior to the claims of equity shareholders.

Equity Treatment: The proposed securities qualify for 50% equity credit, as they meet ���������ֳ�'s criteria with regard to deep subordination, remaining effective maturity of at least five years, full discretion to defer coupons for at least five years and limited events of default. These are key equity-like characteristics, affording Orsted greater financial flexibility. Equity credit is limited to 50% given the cumulative interest coupon, a feature that ���������ֳ� considers to be more debt-like in nature.

Effective Maturity Date: The proposed notes are due in 3021, but ���������ֳ� deems the effective remaining maturity as the step-up date from which the issuer will no longer be subject to replacement language, which discloses the company's intent to redeem the instrument at its call date with the proceeds of a similar instrument or with equity. This is defined even if the coupon step-up is within ���������ֳ�'s aggregate threshold of 100bp, in accordance with the agency's hybrid criteria. ���������ֳ�'s criteria states that the equity credit of 50% would change to 0% five years before the effective remaining maturity date.

Early Redemption: Orsted has the option to redeem the notes in the six months immediately preceding and including the first reset date (12 years after the issue date for the sterling-denominated notes and 10 years for the euro-denominated notes), and on any coupon payment date thereafter. There are also extraordinary call rights in case of adverse developments relating to tax, accounting, loss of equity treatment by rating agencies, and for substantial repurchase events. The issuer also has the possibility of a make-whole redemption on any date prior to the first call date, defined as six months before the first reset date.

Cumulative Coupon Limits Equity Treatment: Interest coupon deferrals are cumulative, which result in 50% equity treatment and 50% debt treatment of the proposed hybrid notes by ���������ֳ�. ���������ֳ� treats coupon payments as 100% interest despite the 50% equity treatment. The company will be obliged to make a mandatory settlement of deferred interest payments under certain circumstances, including the declaration of a cash dividend. This is a feature similar to debt-like securities and reduces the company's financial flexibility.

KEY RATING DRIVERS FOR ORSTED

Leading Market Position in Offshore Wind: Orsted has a leading global market position in offshore wind power - its core business - which benefits from long-term price-support mechanisms and good cash flow visibility in its countries of operation. ���������ֳ� expects Orsted's leverage to increase in 2021-2022, but to remain commensurate with its rating, as the company implements its large 2019-2025 capex plan of DKK200 billion; the plan comprises investments in offshore wind farms (75%-85% of total), onshore wind farms (15%-20%), as well as in the markets and bioenergy segment.

Conservative Financial Policy: Orsted's financial policy assumes a capital structure that is supportive of the 'BBB+' rating, including an FFO/adjusted net debt target of around 30%. Exposure to currency fluctuation, energy prices, interest rates and inflation is mitigated by extensive hedging.

Covid-19 Impact Manageable: The impact from the pandemic on Orsted's operation, revenue and EBITDA was contained in 2020. Reported EBITDA rose by 4% on increased generation from several new wind farms, partly offset by lower earnings from trading and construction agreements with partners.

Risk of Additional Taxes: The Danish Tax Agency has made a claim for Orsted to pay Danish taxation on its two largest UK offshore wind farms, Walney Extension and Hornsea 1, commissioned in 2018 and 2019, respectively. We do not believe the payment of the additional tax would affect Orsted's rating, but it would eliminate its rating headroom, even with an offsetting effect in the UK. However, should more wind farms be subject to additional taxes in Denmark, this may be negative for the rating.

The claim relates to tax years 2015 and 2016, when both projects were in the development stage in Denmark. The Danish tax agency's claim amounts to DKK6.6 billion, including interest in relation to the full value of the projects, including the value created during the construction and operations phase in the UK. Orsted will appeal the decision and ask for a deferral of the tax payment until the case has been decided. The company already paid taxes amounting to DKK6.1 billion in Denmark for the two projects.

Rated on Standalone Basis: Orsted is rated on a standalone basis using our Government-Related Entities Rating Criteria due to what we deem as weak links with the Danish state (AAA/Stable), which owns 50.1% of the company. Under this criteria we assess status, ownership and control as 'Moderate' and the support record, socio-political impact and financial implications of a default as 'Weak'.

Derivation Summary

Orsted is one of the highest-rated European utilities focused on electricity generation. This reflects its leading market position and strong record in offshore wind power, the company's key segment. The company benefits from long-term price-support mechanisms, good cash flow visibility in its countries of operation and strong growth prospects, as many governments support energy transition to renewable sources.

RWE AG (BBB/Stable) is a generation-focused utility with a large conventional fleet, but due to the acquisition of a renewables portfolio from E.ON SE (BBB+/Stable) and innogy SE, most of RWE's 2020-2022 EBITDA will originate from renewables; largely wind and PV generation. This makes RWE comparable with Orsted, which, however, has a higher debt capacity largely due to a greater proportion of renewables in its generation mix.

Statkraft AS's rating (BBB+/Stable) includes a one-notch uplift to its Standalone Credit Profile (SCP) for state support due to strong strategic ties. Its SCP is one notch lower than that of Orsted as it has a much lower proportion of quasi-regulated earnings.

Orsted's wind farm operations benefit from a quasi-regulated income stream and cash flow predictability, but the business's debt capacity is lower than for regulated networks, resulting in a lower debt capacity than for large integrated utilities, such as Iberdrola, S.A. (BBB+/Stable) and Enel S.p.A. (A-/Stable). These large peers are more diversified by business and power generation source, while maintaining a focus on renewables, and have a substantial share of regulated networks in EBITDA compared with none for Orsted after it disposed of its Danish distribution network in 2020.

Key Assumptions

���������ֳ�'s Key Assumptions Within its Rating Case for the Issuer:

- Total capex in line with management expectations of DKK200 billion in 2019-2025

- New offshore wind farms in Europe built as fully owned projects. Our projections do not incorporate a potential farm down of the Borssele 1 and 2 wind farm in the Netherlands, which was fully commissioned in November 2020.

- Project Changhua 1 in Taiwan built in partnership

- Dividends to increase by high single digits annually in 2020-2022

- No additional tax payments related to two UK offshore wind farms, Walney Extension and Hornsea 1. This assumption will be updated if Orsted is required to make additional payments.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

- Strengthening of business profile; for instance, a substantially larger scale and diversification of the wind power business together with limited leverage. However, rating upside is limited due to Orsted's business profile.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

- FFO net leverage above 3.5x and FFO interest cover below 4x for a sustained period

- Deterioration in the operating environment; for instance, unfavourable revision of offshore wind support schemes or a substantial reduction in the share of incentivised wind power production

- Construction risk materialising through significant cost overruns and delays on key wind farm projects

- Failure to further increase the wind farm business's scale and diversification by 2023 could lead us to tighten the negative rating sensitivity for Orsted's FFO net leverage, following the disposal of the regulated power distribution business

Best/Worst Case Rating Scenario

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit /site/re/10111579.

Liquidity and Debt Structure

Strong Liquidity: Orsted had available liquidity of DKK45.6 billion at end-2020, comprising DKK29.9 billion of unrestricted cash and cash equivalents, including liquid and highly rated fixed-income securities, and undrawn committed credit facilities of DKK15.8 billion expiring in 2023-2024. This liquidity comfortably covers short-term bond and bank debt of DKK2.4 billion and ���������ֳ�-projected negative free cash flow after acquisitions and divestitures of about DKK17 billion for 2021.

Date of Relevant Committee

23 June 2020

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on ���������ֳ�'s ESG Relevance Scores, visit

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Applicable Models

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

• Corporate Monitoring & Forecasting Model (COMFORT Model), v7.9.0 (1)

Additional Disclosures

• Solicitation Status
• Endorsement Policy

Endorsement Status