New York, February 20, 2020 -- Moody's Investors Service ("Moody's") has affirmed Colbun S.A.'s
Baa2 issuer and senior unsecured ratings (Colbun, Baa2 stable).
At the same time, it assigned Baa2 to its proposed up to $500
million senior unsecured notes due in ten to thirty years, depending
on market conditions. The outlook is stable.
The proceeds of the proposed notes will be primarily used to refinance
a portion of the company's 4.5% senior unsecured notes
due 2024, subject to a tender offer, with eventual remaining
proceeds to fund capital expenses on new projects.
The assigned rating is based on preliminary documentation. Moody's
does not anticipate changes in the main conditions of the offering.
Should issuance conditions and/or final documentation deviate from the
original ones submitted and reviewed by the rating agency, Moody's
will assess the impact that these differences may have on the ratings
and act accordingly.
..Issuer: Colbun S.A.
Issuer rating: affirmed Baa2
Senior unsecured rating: affirmed Baa2
..Issuer: Colbun S.A.
....Senior Unsecured Regular Bonds/Debenture,
Outlook: Remains Stable
Affirmation of Colbun's issuer and senior unsecured ratings reflects its
size and importance within the power generation market in Chile (Government
of Chile, A1 stable), adequate commercial policy and strong
credit metrics, with interest coverage ratios and CFO pre W/C to
debt expected to range between 6.5x -- 7.5x and 26%
-- 30% over the next three years. The company's cash
flow visibility is enhanced by fuel resource diversification, and
a long-term re-gasification capacity and supply contract
to feed its thermal plants. Exposure to carbon transition risk
is moderate. The company has substantial investments in wind and
solar energy over the next 10 years that may double its installed capacity.
The company benefits from ample liquidity and the transaction would further
extend its already long-dated debt maturity profile.
Our credit view recognizes Colbun's relevance to the Chilean market as
the third-largest energy generator in the country, with a
market share of around 15-17%. The company maintains
a large scale, with 3,811 MW of installed capacity in Chile
and total energy generation of 12.0 Terawatt-hours (TWh)
Colbun has secured an adequate contracted position. The company
has signed contracts for delivery of a maximum energy volume of up to
13 TWh per year in 2020, which is above its average historical position
(2012-2018) of around 11 TWh While these contracts contain fixed
and variable volume commitments, they provide for fixed real prices,
adjusted by inflation and/or the cost of fuel. This has allowed
the company to maintain a healthy EBITDA margin averaging 42% over
the past three years. The contracts for the supply of natural gas
have contributed to this during this period. Around 30%
of the company's committed PPAs expire by 2023. The company is
focused on increasing its share of non- regulated customers.
The rating affirmation considers the effects of the recent tariff stabilization
regime introduced by the government in late 2019 as negative, but
not material to Colbun's credit profile. Preliminary estimates
indicate the immediate impact in cash flows is less than $150 million.
The short-term financial effect on cash flows is mitigated by the
currently strong liquidity levels and generally low leverage. The
government has laid out a plan that involves eventual compensation in
the long-term, but these one-off regulatory changes
could potentially have longer-term negative credit implications
should policy deviate from the established plan or if further changes
are introduced. That would raise concerns over the predictability
of the regulatory regimes as a direct result of higher exposure to social
risks. For further details on the tariff stabilization mechanism,
see (Power generation -- Chile: Proposed legislation to freeze
electricity tariffs is credit negative for power generators).
In addition to continued interest in expanding within the region to countries
with stable regulatory environments, the company has now refocused
its growth strategy on Chile, with a pipeline of 3,100 MW
of installed capacity in wind and solar projects. The business
case is enhanced by the continued decline in development costs and increasing
technological efficiencies that are likely to increase generation output
per installed capacity, as well as a broader generation policy direction
on the part of the government tied to carbon regulation. The Diego
de Almagro solar project, with 200 MW in installed capacity,
and the Horizonte wind project, with 607 MW, are two of the
more advanced projects, and encompass a total capital investment
of approximately $800 million between 2020 and 2024, which
we expect will require very modest debt needs in light of the company's
substantial cash position and slightly positive free cash flow generation.
Colbun's financial profile has improved in light of its more balanced
commercial policy and operating diversification. Overall,
its Moody's-adjusted debt balance peaked at $2.2
billion in 2015, but declined to $1.7 billion as of
December 2019. Moody's-adjusted debt/EBITDA decreased to
2.5x as of December 2019 from 3.5x in 2014. We expect
Colbun's leveraged to increase slightly to 2.6x -- 2.8x
over the next three years as the company manages its generation fleet
to lower contracted sales in 2020 and 2021.
Colbun continues to maintain a very strong liquidity position, with
a cash balance of US$797 million as of December 2019, and
short-term obligations of US$82 million. This strong
cash balance is already net of extraordinary dividends paid during the
year, with an actual payout of 150% of net income (above
the target 50% payout). This cash balance is present to
support potential acquisitions/investments in accordance with the company's
growth strategy. The proposed liability management strategy will
further lengthen the company's already healthy debt profile,
but also provide debt service savings.
The rating assigned to the proposed issuance of up to $500 million
notes due in ten to thirty years reflects its senior unsecured nature,
and the limited impact in consolidated leverage assuming approximately
US$150 million of net notes proceeds will be used for capital expenses.
The indenture includes the typical limitations on the occurrence of secured
financing or engaging in sale and leaseback transactions and does not
contain financial covenants. Events of default include the default
on indebtedness in excess of $40 million by any subsidiary.
The stable outlook reflects our expectation that Colbun will continue
to successfully execute its commercial policy by focusing on extending
its contracted position. We also expect the company to manage any
eventual acquisition prudently, thereby maintaining its strong credit
WHAT COULD CHANGE THE RATINGS UP/DOWN
The rating could experience positive momentum should Colbun further diversify
its operating profile through expansion into other markets that have stable,
creditor-friendly regulatory frameworks. The rating could
also be upgraded if the company's contracted profile is extended further
at average price levels, which can allow its credit metrics to reach
interest coverage above 8.0x, CFO pre-WC-to-debt
above 35% and retained cash flow-to-debt above 15%.
Downward rating pressure could emerge if the company is unable to renew
its expiring power purchase agreements (PPAs) at adequate pricing levels
to preserve its low leverage profile, the company were to perform
large acquisitions that are fully funded with debt, or there is
a significant deterioration in the company's cash/liquidity position,
with no committed credit facilities. In addition, the company's
ratings could be downgraded upon increase in leverage, such that
interest coverage remains below 5.0x on a sustained basis;
CFO pre-WC/debt is below 20% on a sustained basis;
or retained cash flow/debt is below 10% on a sustained basis.
The principal methodology used in this rating was Unregulated Utilities
and Unregulated Power Companies published in May 2017. Please see
the Rating Methodologies page on www.moodys.com for a copy
of this methodology.
Headquartered in Santiago, Chile, Colbun is an operational
holding with assets in Chile (Government of Chile, A1 stable) and
Peru (Government of Peru, A3 stable), engaged in the power
generation and transmission sectors. As of December 2019,
the company had a total combined installed capacity of 3,811 megawatts
(MW), of which 57% is thermal and 42% is composed
of renewable power plants. As of the same date, the company
had 937 kilometers of transmission lines. The company is controlled
by the Matte Group, which has investments in the energy, financial,
forestry, real estate and telecom sectors. In 2019,
the company generated net revenue and Moody's-adjusted EBITDA
of $1,487 million and $693 million, respectively.
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provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
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Vice President - Senior Analyst
Infrastructure Finance Group
Moody's America Latina Ltda.
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Michael J. Mulvaney
MD - Project Finance
Project Finance Group
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Moody's Investors Service, Inc.
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