RWE Credit Bulletin and Key Themes: Relative Value, Balance Sheet Review and Rating Agency Thoughts

J.P. Morgan maintains its Underweight credit view on RWE, a German integrated utility, in this expanded credit bulletin. Recent developments have strengthened RWE's credit profile: the equity-funded acquisition of a larger stake in German TSO Amprion (a further 35% via M31, taking RWE to 58% pending a further 3%) improves earnings quality, diversification, rating headroom and rating agency treatment, while the 3.0-3.5x net leverage target is retained. However, RWE's earnings mix remains centered on power generation, its ratings are 0-1 notch below peers (Baa2/BBB+ at Moody's and Fitch, stable outlooks), and EUR spreads are too tight. On relative value, RWE EUR seniors trade at c.15-75bps (0-25bps tighter YTD), near sector tights despite lower ratings than German peers EnBW and E.ON; EUR hybrids at c.135-170bps;