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Rating Action:

Moody's assigns B3 ratings to Albanesi's senior unsecured notes, stable Outlook.

29 Jun 2016

New York, June 29, 2016 -- Moody's Investors Service ("Moody's) assigned a B3 rating to the proposed USD 250 senior unsecured notes due 2023 guaranteed by Albanesi S.A.. In addition to the guarantee of the parent company, the group's subsidiaries Generación Mediterránea S.A. ("GEMSA"), Generación Frías S.A. ("Frias") and Central Térmica Roca S.A ("Roca") will be joint and several obligors under the notes. At the same time, Moody's assigned a B3 corporate family rating to Albanesi S.A. The rating outlook is stable.

Proceeds from the notes will be used by the issuers to prepay most of their outstanding secured debt (approximately USD 120 million of GEMSA and Roca's secured bank loans) while USD 105 million will be applied to the companies' investment program (USD 50 million for Roca's plant conversion to combined cycle; USD 55 million to expand GEMSA's installed capacity by adding additional 150 MW to its current 442 MW). The remaining USD 25 million will be used for the repayment of other bank loans and general corporate purposes. Moody's has reviewed the preliminary draft legal documentation provided to date related to the debt issuance and the assigned ratings assume that there will be no material variation from the drafts reviewed and that all agreements will be legally valid, binding and enforceable.

RATINGS RATIONALE

The B3 rating reflects the predictable and stable cash flows originated by the long-term capacity payments power purchase agreements (PPAs) that Albanesi companies operate. PPA contracts are dollar-denominated and payments are not subject to realized energy dispatch. In addition, fuel costs (gas or fuel oil) are passed-through to the off-takers under the PPA's and therefore there is no exposure to changes in fuel prices.

The ratings also factor-in the companies' and the parent proven track record of developing and operating generation projects over the past decade. Since the Albanesi group acquired its first generation plant in 2007, its total installed capacity expanded to the current 900 MW. Albanesi's investment program includes expansions of 460 MW in additional capacity over the next 2 years, including some PPAs recently awarded to Albanesi by the Argentine Ministry of Energy.

The ratings are tempered by the companies' small scale, with total assets that even after the planned expansion will represent less than USD 1.0 billion and are largely concentrated in Argentina, under predominantly an unique regulatory regime that still faces some degree of uncertainty.

In addition, most of the co-issuers' EBITDA and cash flows rely on contracts with the government's agency that manages the wholesale electricity market in Argentina "Cammesa". The electricity price controls in place in Argentina translate in Cammesa posting structural operating deficits that need to be covered by the federal government. This leaves the electricity market in Argentina with a high degree of exposure to Argentine government (B3, stable) credit risk that is captured in both the rating level as well as its outlook.

Rating Outlook

The stable outlook is in line with the outlook of the sovereign and reflects and Moody's view that the creditworthiness of the company cannot be de-linked from the credit quality of the government. The stable outlook also considers that combined leverage will decline steadily after peaking in 2017 and once the new capacity becomes operative.

What Could Change the Rating -- Up/Down

The B3 rating is constrained by Argentina's foreign currency bond ceiling; therefore the rating could be upgraded if Argentina's foreign currency bond ceiling is upgraded.

An upgrade of the ratings will also require that the co-issuers continue to generate stable cash flows under their respective PPAs and that the planned expansions are finalized on time to allow the expected debt decline as increased revenues are applied to debt repayment. Quantitatively, an upgrade would require a combined ratio of interest coverage (CFO pre WC plus interest to interest) above 3.5 times, CFO (pre WC) to debt in the range of 25 to 30% and positive levels of FCF on a sustainable basis. A material reduction of leverage, such as a combined debt to EBITDA ratio below 2.5 times could also be beneficial for an upgrade consideration.

A rating downgrade of the sovereign would likely result in negative rating actions for the notes. The ratings could also come under downward pressure if payments from Cammesa under the signed PPAs experience significant delays.

Quantitatively, negative pressure on the ratings could occur if the group's financial policy became more aggressive than expected. Specifically, we would become concerned should combined debt to EBITDA exceed 5.0x times beyond 2017; combined interest coverage (CFO pre WC + Interest/Interest) were to fall below 1.5x or FCF to Debt stayed lower than 15%.

Issuer's Profile

The co-issuers under the notes are three different Argentine corporations or S.A.'s: (1) Generación Mediterránea, 442 MW of installed capacity and annualized revenues of ARS 2.0 billion (USD 130 million), operates four power plants located in four different Argentine provinces. Gemsa is the surviving entity after the merge of 3 smaller companies (Independencia, Riojana and La Banda) into Gemsa. Gemsa's revenues are a combination of sales to the spot market, Energía Plus and Resolution 220 PPAs, the last two explaining close to 80% of its revenues and cash flows. (2) Frias, 60 MW power plant located in Santiago del Estero is a different S.A. that initiated commercial operations in December 2015. Frias' 2016 annualized revenues are estimated at ARS 200 million (USD 15 million), mostly arising from its Resolution 220 PPA. We expect that Frias will merge into Gemsa early next year. Finally, (3) Central Térmica Roca S.A., 130MW power plant located in Rio Negro, with annualized revenues of approximately ARS 550 million (USD 40 million), generates 60% of its cash flows under the Res. 220 framework. While Gemsa and Frias are Albanesi's fully owned subsidiaries, Roca is only 75% owned by Albanesi Inversora S.A. The 25% remaining shareholding interest belongs to an Argentine group of private investors. Nevertheless, the three companies are jointly and severally liable for all obligations under the notes that in addition will be fully and unconditionally guaranteed by Albanesi S.A.

Albanesi S.A. (the parent guarantor), is an Argentine holding company that owns and operates through several plants and subsidiary companies approximately 760 MW of power capacity within the country. In 2015, Albanesi's consolidated revenues in the electricity market reached approximately USD 200 million.

The principal methodology used in these ratings was Unregulated Utilities and Unregulated Power Companies published in October 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

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 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.

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.

Daniela Cuan
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Latin America ACR
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Argentina
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Alejandro Olivo
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Financial Institutions Group
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Moody's assigns B3 ratings to Albanesi's senior unsecured notes, stable Outlook.
No Related Data.
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