New York, November 25, 2013 -- Moody's Investors Service has today assigned a rating of Ba2 to the proposed
issuance by AES Gener S.A. (Gener) of up to US$450
million Junior Subordinated Capital Notes due 2073 (the Hybrid).
Concurrently, Moody's affirmed Gener's Baa3 senior unsecured
rating. The outlook on all ratings is stable.
Gener will use the net proceeds raised in connection with the debt issuance
to repay its US$147 million outstanding senior unsecured notes
due March 15, 2014 (Yankee Notes) as well as to aid in the funding
of new projects and other general corporate purposes.
RATINGS RATIONALE
The Ba2 rating of the proposed Hybrid reflects the terms of the Hybrids
including a maturity of 60 years, its deeply subordinated position
within Gener's capital structure where it will rank senior only
to Gener's common shares and Gener's ability to defer coupons
on a cumulative basis. Additionally, the instrument will
not cross default with other debt of Gener, and investors will have
limited rights regarding the ability to accelerate principal.
As a result, Moody's rating affords the proposed notes preferred
equivalent status although preferred shares have not been routinely issued
by Chilean companies. In addition, Moody's considers
the notes to have sufficient equity-like features to allow the
Hybrid to receive Moody's hybrid securities basket "C" treatment
which is equivalent to 50% equity and 50% debt for financial
leverage purposes (please refer to the Rating Implementation Guidance
publication Revisions to Moody's Hybrid Tool Kit, July 2010).
This basket assessment only applies as long as Gener's senior unsecured
rating remains investment grade; consequently, no equity credit
would apply if the issuer's rating falls to speculative grade.
The two notch rating difference between Gener's senior Baa3 unsecured
rating and the Ba2 Junior Subordinated Capital Notes is largely driven
by Moody's understanding that while interest payments may be deferred
under the Hybrid, more junior instruments in Gener's capital
structure would be paid the Minimum Legally Required Dividend; that
is required under the Issuer's by-laws and Article 79 of
Law 18,046 of Chile on Stock Corporations which stipulates that
unless unanimously agreed otherwise by the shareholders of all issued
shares, listed corporations must distribute a cash dividend to their
common shareholders on a yearly basis, pro-rated by the shares
owned or the proportion established in the company's by-laws
if there are preferred shares issued of at least 30% of the net
consolidated profits from the previous year, except when accumulated
losses from prior years must still be absorbed.
Moody's assumes that there is no material variation from the draft documents
reviewed for the Hybrid being issued and that all legal agreements are
legally valid, binding and enforceable.
Gener's Baa3 rating reflects its role as the second largest power generation
company in Chile, its somewhat geographically diversified operations
and adequate liquidity profile. The rating further incorporates
the expectation that the completion of the 270 MW coal-fired Ventanas
IV earlier this year will allow for a more balanced commercial policy
that enhances the company's cash flow visibility going forward.
Gener's rating is currently tempered by the inherent risks associated
with the company's plans to continue expanding its fleet in order to meet
growing power demand in Chile and Colombia. To that end,
Gener has a fairly sizeable pipeline of projects that includes the construction
of the Cochrane thermoelectric and the Alto Maipo run-of-river
hydroelectric projects.To fund these two projects Gener has partnered
with Mitsubishi Corporation and Antofagasta Minerals S.A.
who are participating with a 40% interests.
The Baa3 rating considers that during the earlier years of this multi-year
construction program, Gener's credit metrics will be weakly
positioned compared to the guidelines for Baa-rated unregulated
power producers outlined in the methodology. This is because for
the period 2013-2015 as the capex-program nears its peak
in 2016, Gener's will not yet begin to benefit during those
years from the cash flows generated by the Cochrane project that is expected
to start operations during the first half of 2016. It should be
noted that Moody's credit metrics calculations include the 50%
equity treatment of the Hybrid plus the project finance loans executed
to fund the Cochrane development and expected to be executed for the Alto
Maipo project despite their non-recourse features. This
is consistent with the treatment already provided to the amortizing project
financial bank loan executed to fund the 545MW Angamos coal-fired
facility.
Moody's believes that the strategic importance of these plants would
deter Gener from walking away despite the non-recourse nature of
the underlying financing. The Baa3 rating further assumes that
in the later years, the credit metrics will benefit from the fact
that Gener's financial footing will become more solid after the
start-up of the Cochrane plant to cope with the tail-end
of the capital outlays associated with Alto Maipo that is expected to
start operations before year-end 2018. Moreover, the
rating also factors the capital increase of up to US$450 million
approved in October 2013 by Gener's shareholders to raise funds
necessary for the issuer to make the required equity contributions into
these two projects, particularly Alto Maipo. The shareholders'
approval to raise equity to help fund these equity contributions along
with AES Gener's efforts to seek strategic partners to alleviate
the financial burden associated with the two new projects underpin Moody's
expectations that Gener will overall fund them prudently despite the pressure
of its indirect parent company, AES, to provide upstream dividend
distributions.
Gener's stable outlook reflects the expectation of enhanced cash flows
amid a more balanced commercial policy, and that the company will
maintain an adequate liquidity profile. The outlook also incorporates
our expectation that the near-term anticipated deterioration in
its key credit metrics will remain commensurate with the lower-end
of the Baa-rating category over the medium term.
An upgrade of Gener's ratings over the intermediate-term appears
less likely in light of the inherent risks of its material multi-year
capex program and the anticipated deterioration in credit metrics.
That said, positive momentum could be triggered if upon completion
of the current expansion program Gener is able to report 3-year
average CFO pre Working Capital (CFO pre-W/C) to debt and Retained
Cash flows (RCF) in the high twenties and 20%, respectively,
on a sustainable basis.
Complications in the completion of the current expansion plan, and/or
a more significant deterioration in Gener's credit metrics than
currently anticipated could put downward pressure on the ratings.
Specifically, a downgrade would result if Gener were to report 3-year
average CFO pre W/C to debt below 20% on a sustainable basis.
The principal methodology used in this rating was Unregulated Utilities
and Power Companies published in August 2009. Please see the Credit
Policy page on www.moodys.com for a copy of this methodology.
Other Factors used in this rating are described in, Revisions to
Moody's Hybrid Tool Kit published in July, 2010.
Headquartered in Santiago, Chile, AES Gener S.A.
(Gener) is the second largest generation company in Chile in terms of
installed capacity (roughly 20% market share) and the nation's
largest thermal power generation company. In the Sistema Interconectado
Central (SIC), Gener operates its own fleet of 997MW, while
it operates an additional 800MW installed capacity through its wholly-owned
subsidiaries, Nuevas Ventanas (272MW), Ventanas IV (272MW;
owned by Electrica Campiche, Sociedad Electrica Santiago (ESSA;
479MW) and along with a 50% interest in Empresa Electrica Guacolda
S.A. (608MW). Operations in the Sistema Interconectado
del Norte Grande (SING) are currently conducted via 277MW Norgener and
the 545MW Angamos (second unit was completed in October 2011; first
in April 2011). Located in Salta, Argentina, the 643MW
combined cycle Termoandes plant is currently operating exclusively in
the Argentinean SADI. Gener is currently pursuing the construction
of the 472MW (net) two units Cochrane coal-fired (total capital
expenditure of around US$1.35 billion) scheme and the 531MW
Alto Maipo four units run-of the river (capex of around US$1.9
billion) project. The Group has also operations in the Colombian
interconnection system (SIN) via the 1,000MW hydro-generator
AES Chivor (Chivor; Corporate Family Rating: Ba1; stable).
Gener is a 71% indirect subsidiary of The AES Corporation (AES;
CFR: Ba3; stable). As of September 30, 2013,
Gener reported around US$5.8 billion total assets and US$2.4
million of outstanding debt, including about U.S.$1.1
billion of senior debt and US$1.3 billion of secured debt.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's affirms Gener's Baa3 sr unsecured rating and assigns Ba2 to proposed Hybrid instrument; outlook stable
