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10 Aug 2010
New York, August 10, 2010 -- Moody's Investors Service assigned a Ba1 rating to The AES Corporation's
(AES) $800 million senior secured revolving credit facility due
January 29, 2015. Concurrent with this rating assignment,
Moody's affirmed all of AES' ratings, including its
Corporate Family Rating (CFR) and Probability of Default Rating (PDR)
at B1, the Ba1 rating on a $200 million senior secured term
loan due August 10, 2011, the Ba3 rating on $290 million
second priority senior secured notes, the B1 rating on approximately
$4.1 billion senior unsecured notes, the B3 rating
on $517 million trust preferred securities and the speculative
grade liquidity rating at SGL-2. AES' rating outlook
AES' B1 CFR reflects the company's high leverage and the structural
subordination of its recourse debt at the parent level to the significant
amount of non-recourse debt in its consolidated capital structure
at the operating subsidiaries' level. Structural constraints are
somewhat mitigated by the diversification provided by AES' large number
of subsidiaries, their wide geographic distribution and balanced
fuel mix, and the significant proportion of the subsidiary's cash
flows that are subject to stable regulation or long-term contracts.
AES' financial performance is expected to remain in a range that
is consistent with its current rating level.
Moody's calculates AES' adjusted parent operating cash flow (POCF,
which is aggregate subsidiary distributions net of parent level interest
expense, parent overhead expenses, income taxes and development
charges) to parent level debt at approximately 9% in 2009,
and the ratio of adjusted parent operating cash flow interest coverage
of approximately 2 times.
Upstream distributions to AES and its resulting financial metrics,
however, are expected to decline modestly in 2010. The primary
driver for the expected near-term decrease in distributions is
AES Eastern Energy, L.P. (AES Eastern: Ba1,
negative outlook), historically one of AES' top providers
of distributions. Weak energy market conditions coupled with a
sharp decline in natural gas prices have materially impacted AES Eastern's
financial profile. As a result, distributions to AES from
AES Eastern are expected to decline dramatically and AES' key standalone
financial metrics for 2010 are expected to weaken modestly to approximately
7% and 1.8 times, respectively. The expected
commercial operation in 2011 of certain generating stations under construction
in Chile and Bulgaria are expected to support increased subsidiary distributions
in 2011 and beyond.
Going forward, AES' businesses in Latin America are expected
to become a larger source of cash flow while distributions from North
America based businesses are expected to decline. Furthermore,
there will be more reliance on distributions from subsidiaries operating
in emerging market economies, such as Argentina, the Dominican
Republic, Nigeria and the Philippines. Overall, we
are the opinion that the increased reliance by AES on its Latin American-based
businesses and reduced visibility of its North American businesses moderately
increases the company's business risk profile.
Today's rating action also took into consideration AES' recently
announced $500 million stock repurchase program and while sizable,
the stock repurchase program appears balanced by initiatives completed
by AES earlier this year that significantly improved the company's financial
flexibility and liquidity profile. Those initiatives included a
transaction completed in March with a subsidiary of the China Investment
Corporation (CIC) that brought in $1.58 billion of new equity
capital and AES' voluntary redemption in May of $400 million
of second priority notes.
The affirmation of AES' speculative grade liquidity rating at SGL-2
reflects the company's improved liquidity position offset in part
by an expected weakening of covenant protection in early 2011 due primarily
to the roll-off, for covenant calculation purposes,
of non-recurring distributions which occurred during the first
quarter of 2010. Improvement, however, is expected
in the second half of 2011 with the commercial operation of generating
stations currently under construction.
AES' parent-only cash at June 30, 2010, totaled
approximately $1.8 billion. The company's liquidity
position has been further enhanced by the recent amendment to its revolving
credit facility which resulted in a increase in commitments to $800
million from $605 million and the extension of its termination
date to January 2015 from July 2011.
The stable rating outlook considers AES' improved liquidity profile
and expected near-term moderation of financial metrics that remain
appropriate for its rating level.
The last rating action on AES occurred on March 31, 2009 when we
affirmed the company's ratings, including its B1 Corporate Family
The principal methodologies used in rating AES are Moody's Rating
Methodology: Regulated Electric and Gas Utilities, published
in August 2009 and Moody's Rating Methodology: Unregulated Utilities
and Power Companies, published in August 2009, and are available
on www.moodys.com in the in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating these issuers can
also be found in the Rating Methodologies sub-directory on Moody's
---$800 million Senior Secured Bank Credit
Facility due January 29, 2015, Assigned Ba1, LGD1,
---$605 million Senior Secured Bank Credit
Facility due July 5, 2011, Withdrawn, previously rated
Ba1, LGD1, 2%
LGD Point Estimate Changes:
--- Senior Secured Credit Facilities, to LGD1,
4% from LGD1, 2%;
--- Senior Secured Second Priority Notes, to
LGD3, 37% from LGD3, 38%.
The AES Corporation is a global power company with generation and distribution
assets in Europe, Asia, Latin America, Africa and the
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Ba1 to AES' secured bank facility; Affirms ratings
250 Greenwich Street
New York, NY 10007
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