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Announcement:

Moody's affirms the Baa2 ratings of Enersis and Endesa Chile; outlooks stable

18 Jun 2012

Approximately $1.5 billion of debt securities affected

New York, June 18, 2012 -- Moody's Investors Service affirmed today the Baa2 senior unsecured ratings of Enersis and Endesa Chile. The outlooks on the ratings continue to be stable.

The affirmation follows the June 15 announcement that Moody's placed under review for possible downgrade the ratings of Endesa Spain and ENEL, including their senior unsecured ratings of Baa1, the direct or indirect controlling shareholders, respectively, of Enersis and Endesa Chile. Placing those ratings under review was triggered by Moody's June 13, 2012 downgrade of the sovereign rating of the Kingdom of Spain to Baa3 from A3, under review for possible further downgrade.

RATING RATIONALE

Moody's affirmed the ratings of Enersis and Endesa Chile because several features currently insulate these ratings from those of ENEL and Endesa Spain and allow them to be above those of their controlling shareholders, should they be higher upon completion of the review for downgrade. These features include the sizeable minority ownership in Enersis and Endesa Chile (around 40% in each), the fact both issuers are listed in the Santiago Stock Exchange, and the absence of cross default provisions between their debt and the debt of the controlling shareholders, as well as the absence of any cash pooling arrangements. Also important is the fact that both of these Latin American issuers have in place their own committed liquidity arrangements and are not reliant on their controlling shareholders to fund their capital needs which helps to limit potential contagion risk.

"While the review of ENEL and Endesa Spain's ratings is a negative development, we do not see any immediate implications for the ratings of Enersis and Endesa Chile, which are currently adequately positioned within their rating category," stated Natividad Martel, Assistant Vice President at Moody's.

Endesa Chile's Baa2 rating reflects the benefits associated with the group's geographically diversified operations. It also reflects its dominant position within its core power generation market in Chile as well as the relevant roles that its key subsidiaries play in their respective markets. The rating also captures the group's balanced commercial policy that significantly offsets the inherent hydrology risk associated with the group's still significant hydro-fleet and reduces the potential cash flow volatility that often exists in the cyclical power generation business such that the visibility of Endesa Chile's own operating cash flows is enhanced along with its subsidiaries' ability to make upstream dividend distributions .

Enersis' Baa2 senior unsecured rating also captures the diversification benefits associated with its controlling interests in generation, distribution and transmission subsidiaries that operate in several Latin American countries. The rating also acknowledges with the exception of the Argentinean subsidiaries, the overall stable and predictable regulatory frameworks the group's remaining operations are subject to. The generation subsidiaries' balanced commercial policy along with the relatively recent tariff reviews of several of the regulated distribution subsidiaries has underpinned the predictability of the cash flows upstreamed to Enersis which is expected to be further enhanced by Moody's expectation of a fair outcome in Chilectra's next distribution tariff review scheduled for the end of this year. Enersis' rating also incorporates the degree of structural subordination that exists at the parent, with outstanding holding company debt currently representing around 15% of the group's consolidated indebtedness

The ratings of Enersis and Endesa Chile incorporate Moody's expectation that the group will continue to fund its sizeable capital investments in a prudent manner that keeps credit metrics adequately positioned within the Baa-rating category. These investments include a material pipeline of power generation projects currently under study. In light of this material capital expenditure program, the ratings also assume the issuers will continue to maintain a conservative dividend policy with a payout ratio that currently represents 50% of distributable net income. Moody's believes that ENEL's public de-leveraging objectives, which are evaluated in terms of net debt, have historically deterred ENEL from greatly increasing distributions from its Latin American operations given the sizeable minority interests at Enersis and Endesa Chile and the negative impact on cash balances that would occur if such distributions were substantially increased.

The ratings also acknowledge the group's robust cash balances, which aggregate over US$2.3 billion on a consolidated basis, of which over US$990 million are held in Chile, including around US$730 million at Endesa Chile. The ratings recognize a somewhat manageable debt maturity profile given the group's consolidated debt maturing before the end of the year, as reported at the end of March 2012, aggregated US$1.2 billion (including around US$5 million at the Enersis holding company level and about US$230 million at Endesa Chile on a standalone basis).Another US$1 billion consolidated debt comes due next year (including another US$5 million at the Enersis holding company and US$420 million at Endesa Chile standalone). The next significant debt maturity at Enersis is in 2014 when US$594 million will become due.

Moody's anticipates that Enersis and Endesa Chile will renew at least some of the group's three committed credit facilities in the aggregate amount of approximately US$300 million that expire in December 2012 (one at Endesa Chile for around US$100 million). If not renewed, the increase in the group's reliance on the local and foreign capital markets to bridge its funding requirements is a credit negative. Those requirements include the aforementioned debt maturities, the need to pay dividends, and a portion of the group's ongoing capex plan in excess of its internally generated cash flows. Having access to sizeable committed credit facilities is important to ensure that Enersis and Endesa Chile remain insulated from any potential contagion risk should their controlling shareholders' access to the capital markets deteriorate.

Enersis and Endesa Chile's stable outlooks reflect Moody's expectation that their financial metrics will remain adequately positioned within the Baa category, and that new projects will be funded prudently. The stable outlooks also assume that Enersis and Endesa Chile will manage their liquidity carefully, maintaining robust cash balances, to ensure they remain insulated from any potential contagion risk from their controlling shareholders. Should such cash balances decline in connection with increased investments or dividends, the stable rating outlook incorporates an expectation that such cash liquidity would be replaced by increased multi-year credit facilities that contain little or no conditionality around new money advances. To that end, the stable outlook factors in the expectation that Enersis and Endesa will renew a portion of the three committed credit facilities ahead of the December 2012 expiry date.

Upward pressure on Enersis' and Endesa Chile's ratings over the near to intermediate term is unlikely given the current uncertainty about the outcome of the review of their controlling shareholders' ratings, and the funding sources for the sizeable multi-year investment program currently under study.

A downgrade of the ratings of Enesis and Endesa Chile could be triggered by a sustained weakness in financial performance resulting from a substantial deterioration in cash flow generation, and/or material increase in leverage to fund new projects. Downward rating pressure could also surface from a multi-notch downgrade in the ratings of ENEL and/or Endesa Spain and if they also were to increase their reliance on the cash flows they receive from these Latin American subsidiaries. The latter could take place amid further deterioration in the macroeconomic conditions in ENEL's core markets, namely Spain and Italy, a risk reflected in the negative downward pressure on the sovereign ratings of the government of Italy (A3, negative) and the Kingdom of Spain. Specifically, downward pressure would develop if Moody's perceives the ratings of Enersis and Endesa Chile as being less insulated, requiring these ratings to be brought more in line with the controlling shareholders' ratings should they be downgraded.

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.

Headquartered in Santiago, Chile, Endesa Chile is a leading wholesale power generation company in Latin America, with operations in Chile, Colombia, Peru and Argentina and holds a 38.88% ownership stake in Endesa Brasil. At the end of March 2012, Endesa Chile had total assets of US$13.2 billion. Endesa Chile's controlling shareholder is Enersis via its 60% ownership stake.

Also headquartered in Santiago, Enersis is the largest private power holding company in Latin America with a portfolio of ownership stakes in subsidiaries and affiliates operating in the electric generation (mainly via Endesa Chile) as well as regulated distribution and transmission in Chile, Peru, Colombia, Argentina and Brazil. At end of March 2012, Enersis' reported consolidated assets of approximately US$28 billion. Following the purchase of Endesa S.A. during 2009, ENEL, SpA (ENEL; Baa1; under review for possible downgrade) is Enersis' indirect controlling shareholder via its 60.6% stake in Endesa Latinoamerica in which ENEL has an indirect 92% interest.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, 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 has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Natividad Martel
Asst Vice President - Analyst
Infrastructure Finance Group
Moody's Investors Service, Inc.

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 the Baa2 ratings of Enersis and Endesa Chile; outlooks stable
No Related Data.
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