Moody’s Upgrades the Ratings of Enersis S.A. to Ba2 (Sr. Unsec.) From Ba3; Upgrades Endesa Chile to Ba2 (Sr. Unsec.) From Ba3; Rating Outlook is Stable For Both Issuers
Moody’s Investors Service upgraded the senior unsecured debt ratings of Enersis S.A. to Ba2 from Ba3. Moody’s also upgraded the senior unsecured debt ratings of Endesa Chile to Ba2 from Ba3. Endesa Chile is owned 60% by Enersis. The rating outlook for both companies is stable.
Separately, Moody’s assigned a rating of Ba2 to Enersis’ planned issuance of US $300 million of Rule 144A Notes in the US market. The Notes are expected to have a 10 year maturity. Concurrently, the company has closed a US $800 million bank facility of which $500 million will be drawn November 19th and is undertaking a stock offering to raise about US $130 million in new capital. The proceeds from the sale of the Notes, the new bank facility and the capital infusion will be used to repay the company’s existing US $1.0 billion bank facility.
The rating upgrades reflect the following developments that have strengthened the credit quality of both companies.
1. A significant decrease in balance sheet leverage. Enersis is in the midst of its second pre-emptive rights offering. The first increase in equity occurred in June, 2003 which resulted in an increase in equity of US $1.2 billion through the conversion of Endesa Spain’s inter-company loan to equity and new capital from minority shareholders. The company is in the midst of a second offering period that ends on December 20th and is expected to raise about US $130 million. In terms of debt, thus far in 2003, Enersis has reduced its consolidated debt from US $9 billion to US $6.7 billion through the combination of debt prepayments from the proceeds of various asset sales and equity issuance, the conversion of the Endesa Spain inter-company loan to equity and debt that was associated with divested or deconsolidated operations. Endesa Chile’s debt has been reduced to US $3.8 billion from US $4.9 billion as of September 30, 2003.
2. Continuing improvement in the Chilean economy is expected to enhance both companies’ operating performance. For the nine-month period ended September 30, 2003, Enersis realized 57% of operating revenues from its Chilean operations and Endesa Chile derived 46 % of operating revenues from Chile. Given the company’s historic position, size and diverse operations within the Chilean electricity market, Enersis enjoys a strong market presence in a stable regional economy (Chile is rated Baa1 with a stable outlook). On the distribution side, Enersis has 1.3 million customers through its operating subsidiary Chilectra which is almost half of Chile’s customer base. With respect to generation, through its subsidiary Endesa-Chile, Enersis has 19 generating facilities with an installed capacity equal to 36% of the nation’s total. Furthermore, through Endesa-Chile’s subsidiaries – Pehuenche, Pangue and San Isidro – the company has additional generation equal to about 52% of total installed capacity in the Sistema Interconectado de Chile (SIC) which provides electricity to the Santiago metropolitan area. This degree of market dominance and the fact that the majority of Chilean revenues are contracted provides a substantial degree of operating stability.
3. Enersis’ bank facility will carry a lower interest cost and release the pledge of the company’s shares of Chilectra as security upon prepayment of the current facility, improving the current position of the senior unsecured debt. The new bank facility, debt repayment, and debt refinancing will improve the company’s liquidity position by rescheduling the preponderance of maturities to 2006 and beyond.
4. Expected improvements in the performance of Enersis’ 60% affiliate Endesa Chile which recently executed contracts with the Pehuenche ethnic landowners regarding the final land appropriations for Endesa Chile’s Ralco hydroelectric project. This supports timely completion of the 570 MW generation project which will enhance operating and financial performance.
In conjunction with the upgrade of Enersis, Moody’s has also upgraded the senior unsecured rating of its affiliate Endesa Chile to Ba2 with a stable outlook. The upgrade recognizes improving prospects for Endesa Chile following the completion of the Ralco project which will increase cash flow and lead to lower capital expenditures, and also considers the significant degree of operational and financial interdependence between Endesa Chile and the Enersis family of companies.
The ratings consider the strong competitive position of both Enersis and Endesa-Chile. The upgrades assume that there will be continued improvements in operating and financial performance at both companies due to efforts to reduce debt, reduce costs, and improve operational efficiency. Both companies are also expected to benefit from moderate improvements in some of the regional economies in which they operate. The stable outlook incorporates the continued expected decline in leverage and strong management of the companies’ liquidity position. The stable outlook also reflects Moody’s view that, under the current regional environment, further rating upgrades are unlikely, absent strong and structural improvements in the performance of the companies’ non-Chilean subsidiaries.
The ratings of Enersis and Endesa Chile also consider the challenges of operating in developing countries with less political and economic stability than Chile. Weak results in these countries contribute to low returns for Enersis and Endesa Chile. In addition, Endesa Chile has potential exposure to cross default with a subsidiary in Argentina. Both Enersis and Endesa Chile have relatively weak financial metrics in global comparison to utilities in the rating category, including low cash flow relative to debt load.
Based in Santiago, Chile, Enersis is owned 65% by Endesa S.A., one of the largest integrated Spanish utilities in the world. Endesa Chile, an electric generation company primarily comprised of hydro facilities, is owned 60% by Enersis.
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