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Rating Action:

Moody's affirms Angamos' Baa3 rating; changes outlook to stable

28 May 2021

Approximately $70.5 million (originally $800 million) debt securities affected

New York, May 28, 2021 -- Moody's Investors Service ("Moody's") today affirmed the Baa3 senior secured rating of Empresa Electrica Angamos SpA (Angamos) and changed the outlook of to stable from negative.

RATINGS RATIONALE

Today's rating action primarily considers Angamos' non-volumetric contracted cash flows that we anticipate will allow the issuer to service its fully amortizing 2029 senior secured notes along with its intertwined liquidity with parent company, AES Gener S.A. (Gener; Baa3 stable). Angamos' credit profile incorporates a view that Gener will continue to manage the subsidiary's liquidity needs as a single system. This expectation is based upon the existence of an August 2020 intercompany loan agreement between Angamos and Gener, that followed Angamos upstreaming of around half of the $720 million proceeds (gross) received from its key off-takers, Minera Escondida Limitada (MEL, Baa2 stable) and Minera Spence SpA, to terminate their power purchase agreements (PPAs).

In that regard, in September and October 2020, Angamos used its available cash balance as well as a down-stream payment from Gener of $71 million under this intercompany loan to fund the early redemption of around $435 million or around 85% of the project's total debt outstanding in October 2020. Further evidence of the intertwined liquidity relationship is Gener's additionally providing $127 million of cash to co-fund Angamos' total tax payments of $177 million due in connection with the termination payments in April 2021. Currently, the remaining balance under the intercompany loan totals $162 million which cexceeds the current outstanding balance of $70.5 million (following the May 2021 amortization) of Angamos' senior amortizing secured notes that mature in May 2029. Prospectively, we anticipate that Angamos will upstream any available distributable cash flow, after meeting its debt service, under this intercompany loan, which we believe will be used to meet any funding requirement at Angamos, should it occur.

Angamos' credit profile recognizes the level of non-volumetric cash flows that we anticipate will further cover the plant's fixed costs, including the annual debt service that ranges between $12 million and $9 million until the notes maturity in 2029. These contracted cash flows include payments under the PPAs with MEL and Spence until their termination becomes effective in August 2021. Afterwards, Angamos' annual fixed charges will drop below $30 million from around $120 million (in 2020) under its remaining PPA with Quebrada Blanca expansion (QB2). This availability based contract is scheduled to expire in December 2037. In April 2021, QB2's majority shareholder, Teck Resources Limited (Teck; Baa3 stable) disclosed that progress in the expansion works of its majority-owned copper mine subsidiary approximates 50%. Until QB2 achieves certain operational and financial milestones, its obligations remain guaranteed by its key shareholders, Teck for two-thirds of the contractual obligations and Sumitomo Metal Mining Co., Ltd (SMM) and Sumitomo Corporation (Baa1; stable) for the remaining one-third. Angamos' non-volumetric cash flows also include annual capacity payments collected from the Chilean electricity system for reliability purposes that historically approximated over $20 million as well as annual payments from its sister company Empresa Electrica Cochrane SpA (Cochrane; Ba1 negative) for managing their shared facilities. Angamos' credit profile is tempered by the environmental risks associated with its coal-fired operations, which may accelerate as the country moves to a lower carbon footprint.

Outlook

The stable outlook assumes that Angamos will continue to collect sufficient capacity payments during the remaining tenor of the notes such that its non-volumetric cash flows will comfortably meet its fixed annual debt service. The stable outlook assumes that Gener will continue to downstream cash, as needed, to help Angamos meet any liquidity needs that may arise and maintain an intercompany loan balance that equals at least the outstanding balance under Angamos' outstanding amortizing notes due in 2029.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

Factors that could lead to a downgrade

A downgrade of Angamos is likely if, against our expectations, (i) the balance under the intercompany loan drops below the balance due under Angamos' outstanding amortizing notes following a more than anticipated cash distribution policy; (ii) Gener, ceases to manage Angamos' liquidity needs as part of a single system under the intercompany loan agreement; (iii) Angamos is retired early or ceases to collect capacity payments before the notes maturity; or (iv) if Angamos' contracted non-volumetric cash flows do not fully cover its fixed costs, particularly after Gener's coal-to-green agreement with QB2 becomes effective in 2023.

Negative momentum on the rating and/or outlook is likely following a deterioration in (i) Gener's rating and/or outlook or (ii) Angamos' offtaker risk following the release of QB2's shareholders guarantees, currently expected in late 2022/early 2023. Downward pressure is likely if Angamos' Debt Service Coverage Ratio (DSCR) falls below 1.5x, on a sustainable basis. Negative pressure on the rating will also be considered if Moody's see a higher than anticipated exposure of Angamos to carbon transition risk.

Factors that could lead to an upgrade

An upgrade of the rating is unlikely given its intertwined liquidity with Gener (Baa3 stable) and the exposure of its coal-fired generation operations to carbon transition risk.

The principal methodology used in this rating was Power Generation Projects Methodology published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1236893. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Profile

Angamos is a wholly-owned subsidiary of AES Gener S.A. (Baa3 stable). Angamos owns and operates a 558 MW (gross) coal-fired generation facility in Chile (Government of Chile; A1 negative). Following the termination of the PPAs with MEL and Spence, that will become effective in August 2021, Angamos' only offtaker will be QB2 (80 MW). QB2's obligations remain guaranteed by its main shareholders, Teck Resources Limited (Baa3 stable; two-thirds) along with Sumitomo and SMM (total: one-third).

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 rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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.

Natividad Martel
Vice President - Senior Analyst
Infra Finance Group
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

Cristiane Spercel
VP-Sr Credit Officer/Manager
Infra Finance Group
JOURNALISTS: 0 800 891 2518
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

No Related Data.
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