Approximately BRL360 million of debt instruments affected
Sao Paulo, February 23, 2011 -- Moody's America Latina (Moody's) assigned issuer ratings of Baa3
on the global scale and Aa1.br on the Brazilian National Scale
to Empresa Amazonense de Transmissão de Energia S.A.
(EATE). At the same time, Moody's assigned a Baa3 global
scale rating and Aa1.br rating on the Brazilian National Scale
to the 5-year BRL360 million senior unsecured debentures to be
issued by EATE in the local market. The outlook for all ratings
is stable. This is the first time Moody's has rated EATE.
The proceeds of the proposed BRL360 million debentures will be used to
replace around BRL270 million of existing long-term debt with the
BNDES and to support dividend distributions to the shareholders in the
near term.
Assignments:
....Issuer: Empresa Amazonense de Transmissão
de Energia S.A. (EATE)
....Issuer Rating: Baa3 (global scale)
/ Aa1.br (Brazilian national scale)
....BRL360 million senior unsecured debentures:
Baa3 / Aa1.br
RATINGS RATIONALE
The Baa3 and Aa1.br issuer ratings reflect EATE's predictable and
stable cash flows provided by its diversified portfolio of long-term
regulated concession agreement to operate electricity transmission lines
in different regions of Brazil. The relatively long track record
of operations, management's expertise in the transmission
business and the company's strong credit metrics further support the rating.
The high level of investment activity of its controlling shareholders:
Alupar (Ba1/Aa2.br, Stable) and Cemig (Ba1/Aa2.br,
Stable) constrains the ratings, as does the limited structural provisions
embedded in the proposed debentures and EATE's evolving corporate
governance practices.
Moody's views the regulatory framework for transmission companies in Brazil
as well developed and highly predictable in terms of cost recovery and
return on invested capital. The secure and stable nature of the
transmission segment stems from the Permitted Annual Revenues (RAP),
which are based on fixed capacity payments throughout the concession period
that have provisions for automatic annual adjustments for inflation.
Nevertheless, the track record of the current framework is rather
limited and some procedures are still untested, such as the indemnification
of non-depreciated assets upon the non-renewal or termination
of an existing concession.
EATE largely benefits from a diversified portfolio of concessions.
The company has four high-voltage transmission lines comprising
1,953 kilometers under 30-year concession agreements.
A 932-kilometer line in the states of Para and Maranhao is the
largest transmission line in the portfolio held directly by EATE.
The other concessions are held through EATE's subsidiaries:
Sistema de Transmissão Catarinense S.A. (STC),
which has a 195-km transmission line in the state of Santa Catarina;
Lumitrans -- Companhia Transmissora de Energia Elétrica (Lumitrans),
which has a 51-km transmission line in the state of Santa Catarina
and Empresa Brasileira deTransmissao de Energia S.A. (EBTE),
which is finalizing the construction of a 775-km transmission line
in the state of Mato Grosso.
EATE also benefits from a portfolio of concessions primarily granted prior
to 2006 wherein the tariffs are not subject to periodic reviews.
The only exception is EBTE, which was granted in 2008 and is subject
to periodic tariff reviews every five years. The Permitted Annual
Revenues (RAPs) for the other operating concessions are scheduled to step
down 50% starting in February 2019. The RAPs authorized
by the regulator add up to BRL322 million for the consolidated company,
which does not include EBTE's RAP of BRL29 million. These
revenues are valid from July 2010 through June 2011.
The inherently stable nature of the transmission services provides EATE
predictable and stable cash flows and strong consolidated credit metrics
for the rating category. The network availability has been around
99.9% over the last three years and maintenance capital
expenditures represent less than 1% of its regulated asset base.
EATE's cash generation has been further boosted by fiscal incentives
that have lowered its income tax rate. Moody's estimates
the effective tax rate to be around 16% over the next three years,
after which it would return to the regular 34% rate.
The cash benefit from the fiscal incentives cannot be distributed to the
shareholders. It needs to be reinvested in the existing business
or in other new developments. For this reason, EATE has implemented
a strategy to participate in other transmission companies. In 2008,
EATE invested approximately BRL91 million for the acquisition of an 80%
participation in STC and Lumitrans. Since 2009, EATE has
also invested about BRL 112 million in EBTE to support the construction
of its new transmission line that will start operations in the first half
of 2011. EATE has a 51% ownership interest in EBTE.
Despite a relatively high level of capital expenditures compared with
the peer group of other operating transmission companies, EATE has
low consolidated leverage. This is evidenced by a Net Debt to EBITDA
ratio of 1.8x in 2009, which is well below the limitation
included in the proposed debentures of a maximum Net debt of BRL785.4
million representing approximately 3 times EATE's current EBITDA.
This maximum amount of net debt as defined in the indenture will be adjusted
annually by the general price index (IGP-M).
Leverage as measured by the Funds from Operations (FFO) to Net Debt ratio
averaged 30% from 2007 through 2009, while the FFO interest
coverage ratio was 3.5x in the same period. These indicators
refer to the consolidated company. Under normal circumstances,
Moody's would expect a gradual and consistent improvement in EATE's
consolidated capital structure given its very stable and predictable cash
flow. After the completion of EBTE's construction work in
2011, Moody's assumes that capital expenditures will be restricted
to maintenance expenditures only. Moody's believes that the
lack of clarity with regard to possible expansion capital expenditures,
new concessions or acquisitions represents a potential change to the above-outlined
scenario. A dividend payout ratio estimated at 95% also
tempers the view of an improving capital structure.
EATE has corporate governance standards that are below the average of
its peer group of electric utilities with investment grade ratings.
Moody's view is that the entrance of CEMIG into the capital structure
of EATE in August 2006 helped to enhance its corporate governance practices
and assures higher transparency, given that CEMIG is a company with
corporate governance standards above the average; however,
we believe there is still room for further improvement by the publication
of audited and consolidated cash flows on a quarterly basis.
The stable outlook reflects Moody's expectation that EATE will continue
to prudently manage capital expenditures and the distribution of dividends
in tandem with its cash flow capacity while maintaining an adequate liquidity
position.
The ratings could be upgraded if EATE's corporate governance practices
improve along with a track record of continued strong financial performance,
such that the consolidated FFO interest coverage is greater than 4.5x
along with a FFO to Net debt above 35% on a sustainable basis.
The ratings or outlook could be downgraded if there is significant increase
in leverage and deterioration of the liquidity profile driven, for
example, by an unexpected sizeable investment program or dividend
distribution. Quantitatively, the ratings or outlook could
come under downward pressure if the consolidated FFO interest coverage
ratio falls below 3.5x and the FFO to Net debt stays below 25%
for an extended period. A material change in the regulatory framework
in Brazil could also cause a downgrade in the ratings or outlook.
The principal methodology used in this rating was Regulated Electric and
Gas Networks published in August 2009.
Moody's National Scale Ratings (NSRs) are intended as relative measures
of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale ratings in that they are not globally
comparable with the full universe of Moody's rated entities, but
only with NSRs for other rated debt issues and issuers within the same
country. NSRs are designated by a ".nn" country modifier
signifying the relevant country, as in ".br" for Brazil.
For further information on Moody's approach to national scale ratings,
please refer to Moody's Rating Implementation Guidance published in August
2010 entitled "Mapping Moody's National Scale Ratings to Global Scale
Ratings."
Empresa Amazonense de Transmissão de Energia S.A.
(EATE) is a transmission company that controls a portfolio of four long-term
concessions comprising 1,953 kilometers of high-voltage transmission
lines in the states of Maranhão, Pará Santa Catarina
and Mato Grosso. These concessions have a 30-year term and
will expire from 2031 through 2038. EATE is controlled by Alupar
Investimentos S.A. (Alupar), which has 50.02%
of its voting capital and 38.55% of its total capital.
The other major shareholder is Companhia Energetica de Minas Gerais (CEMIG)
with 49.98% of EATE's voting capital and 38.53%
of the total capital. In 2009, EATE posted consolidated net
sales of BRL282 million (USD141 million) and EBITDA of BRL258 million
(USD129 million).
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service's information, and confidential and proprietary Moody's
Analytics' information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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 the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Sao Paulo
Cristiane Spercel
Analyst
Infrastructure Finance Group
Moody's America Latina Ltda.
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300
New York
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's America Latina Ltda.
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16th Floor, Room 1601
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Brazil
JOURNALISTS: 800-891-2518
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Moody's assigns Aa1.br rating to EATE's debentures, outlook stable
