New York, August 03, 2020 -- Moody's Investors Service, ("Moody's") today
assigned first-time Baa3 issuer and debt ratings to AES Panama
Generation Holdings S. de R.L. ("AES PGH" or "Issuer")
and its proposed $1,381 million Reg S / 144 A Senior Secured
Notes in a 7-year and 10-year tranches (due 2027 and 2030;
together the "Notes"). The outlook on the ratings is
stable.
The Notes will rank pari passu with a 3-year fully amortizing $104.5
million Senior Secured Loan (due 2023), for a total outstanding
debt of $1,486 million. AES PGH is an entity created
with the sole purpose of issuing consolidated debt of the operating companies
of AES Global Power Holdings in Panama. The various assets of AES
are operated under four entities (together, the "OpCos"
or the "Portfolio"): AES Changuinola, AES Panamá
S.R.L., and Costa Norte LNG Terminal and Gas
Natural Atlantico (together "AES Colón"). The
Notes and Loan proceeds will refinance most of existing debt at the OpCos
which will in turn enter into Intercompany Loans (ICL) with the Issuer.
Assignments:
..Issuer: AES Panama Generation Holdings S.
de R.L.
....Issuer Rating, Assigned Baa3
....Senior Secured Regular Bond/Debenture,
Assigned Baa3
Outlook Actions:
..Issuer: AES Panama Generation Holdings S.
de R.L.
....Outlook, Assigned Stable
RATINGS RATIONALE
The ratings assigned reflect the strategic, competitive and highly
contracted (82% on average) generation portfolio of assets in Panama
that contribute to more than 37% of the country's generation.
Importantly, a large portion of the energy and capacity is contracted
with the three Panamanian distribution companies ("DISCOs"),
which are partially government owned and effectively operate as regional
monopolies in Panama. As such, we consider that the counterparty
risk of these DISCOs reflects the broader electricity demand risk in the
country. Furthermore, AES Panama includes natural gas generation
assets, which mitigates exposure to low hydro generation,
that accounts for more than half of total capacity.
The proposed transaction also considers various credit enhancements including
a $50 million liquidity facility, additional indebtedness
tests and dividend lock-ups. Notwithstanding, the
ratings are tempered by the high leverage and refinancing risk.
The credit enhancement provided by the dividend lock-up mechanism
is tempered by the fact that dividend distributions on AES Panama S.R.L.
also relies on the approval of the Government of Panama (Baa1 stable),
however risk is partially mitigated by the track-record and good
relationship with the Government of Panama. The assigned rating
also considers that the transaction will benefit from AES Global Power
Holdings' pledge of shares of the OpCos to a trust as security for
the ICLs.
Our assigned rating also reflects AES Global Power Holdings' internal
dividend distribution policy that considers minimum cash balances at the
OpCos and capital investment needs. Dividend distributions are
projected to be sizable although this is counterbalanced by the additional
indebtedness tests and dividend lock-ups in case there's
a default on any of the ICLs.
Moody's Base Case scenario assumes a P(90) generation on the hydro
assets in 2023 and 2024 and a cap on AES Colon's LNG storage asset
from 2023 to 2030 (up to 24 Trillion British Thermal Units, "TBTU")
which represents, on average, a 41% drop on the storage
revenues, compared to the Management Case. Under the Moody's
Base Case scenario, projected financial metrics are consistent with
Ba scores under our methodology. Cash from Operations Pre-Working
Capital (CFO Pre-W/C) + Interest / Interest is expected to
average 4.3x (2020-2030), CFO Pre-W/C / Debt
ratio projected to average 17% and Retained Cash Flow to Debt Ratio
to average 9.0% over the same period, as a result
of the planned dividend distributions from the OpCos to GPH. We
also project that Debt / EBITDA will approach 4.0x at AES Panama
in the next 3 to 5 years as the company reduces its debt balance.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
In Moody's view, environmental risks are not material to AES PGH's
credit profile. While the unregulated utilities and unregulated
power is among three sectors (besides coal mining and coal terminals)
in Moody's environmental heat map that have "immediate,
elevated risk" from climate change considerations, AES PGH
is considered to have low carbon transition risk since most of its generation
capacity is hydro.
Social risks are not material to AES PGH credit profile. AES PGH
has low social risk and we are unaware of any concern regarding unions,
or communities.
We view AES PGH's corporate governance as a moderate risk.
Their dividend distribution policy relies on minimum target cash balances
and the decision to distribute dividends is shared with other stockholders
at the operating company level. These risks are partially mitigated
by the structure that could trap AES Global Power Holdings' portion
of the dividends and the pledge of shares as collateral.
The stable outlook reflects our view that AES PGH will maintain stable
and visible cash flows that support projected financial metrics.
Specifically, we expect that CFO Pre-W/C /debt and the interest
coverage ratios will average around 17% and 4.0x,
respectively and on a projected basis.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
We could upgrade AES PGH's ratings if the company reduces its debt
balances or increases its cash flow generation such that it records CFO
Pre-W/C /debt at or above 20% the interest coverage ratio
at or above 4.5x.
We could downgrade AES PGH's ratings if the company records FFO/debt
below 15% on a sustained basis the interest coverage ratio remains
below 3.0x on a sustained basis. Projected Debt / EBITDA
above 4.0x on a sustained basis could also exert downward pressure
on the ratings.
The principal methodology used in these ratings was Unregulated Utilities
and Unregulated Power Companies published in May 2017 and available at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1066389.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and 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 or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst 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
for additional regulatory disclosures for each credit rating.
Adrian Garza
Vice President - Senior Analyst
Project Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653
Alejandro Olivo
Associate Managing Director
Project Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
