Up to US$350 Million of Debt Securities Affected
New York, April 18, 2017 -- Moody's Investors Service, ("Moody's") assigned
today a Ba2 corporate family rating (CFR) and senior unsecured rating
to the proposed issuance of up to US$350 million senior unsecured
notes by Energuate Trust (Energuate). This is the first time Moody's
has assigned a rating to Energuate. The rating outlook is stable.
Energuate will largely use the proceeds from the notes to repay outstanding
local debt (of nearly US$310 million). In addition,
Energuate will make cash distributions to the shareholders of Distribuidora
de Electricidad de Occidente, S.A.'s (DEOCSA)
and Distribuidora de Electricidad de Oriente, S.A.'s
(DEORSA) in the form of dividends (US$57 million) and capital reductions
(US$73 million). To that end, Energuate will complement
the proceeds from the notes with financing raised through a local bank
on April 7, 2017 for total of up to Quetzal 1,140 million
(equal to approximately US$155 million). Thus, after
completion of the transaction the utilities' total debt obligations
will aggregate US$450 million.
The assets of the trust consist of the trust's right to receive payments
under a Participation Agreement entered with Credit Suisse AG, Cayman
Island Branch (lender of record). The Trust Notes are structured
so that funds available in the trust will be sufficient to pay amounts
due on the Notes as if they were senior unsecured obligations of two Guatemalan
utilities, namely DEOCSA and DEORSA. These utilities also
absolutely, unconditionally and irrevocably guarantee, jointly
and severally, all obligations, including debt service payments,
to the Indenture Trustee, which acts on behalf of the Notes-holders.
The following rating actions were taken:
Assignments:
..Issuer: Energuate Trust
....Corporate Family Rating, Assigned
Ba2
....Senior Unsecured Regular Bond/Debenture,
Assigned Ba2
Outlook Actions:
..Issuer: Energuate Trust
....Outlook Stable
RATINGS RATIONALE
"The Ba2 ratings largely reflect the utilities' credit quality
because of the structure of the transaction" said Natividad Martel,
Vice President -- Senior Analyst. "The Ba2
ratings reflect the fully regulated nature of the utilities' operations.
They also capture the overall credit supportiveness of the regulatory
environment in Guatemala (Ba1 stable)", added Martel.
They also consider the natural hedge that results from the semi-annual
tariff adjustment-mechanisms which also drive the capital structure,
in terms of the debt-mix between US$ versus Quetzal denominated
indebtedness. The ratings further factor in the two utilities'
adequate liquidity profile which is underpinned by the planned execution
of two committed bank credit facilities for up to US$40 million,
particularly because Moody's understands that borrowings will not be subject
to material adverse change clauses.
The Ba2 ratings are tempered by the size of the utilities and their service
territory, which is largely rural. The ratings also consider
management's plan to, overtime, improve the utilities'
operational performance and cash flows for example by stepping-up
their investments in order to reduce non-technical losses and improve
service quality. The Ba2 ratings also consider the deterioration
in the combined key credit metrics, which in 2016 largely resulted
from the additional debt to help fund the tax claims from the Guatemalan
tax authorities (total US$74 million). In 2017, the
incremental debt will be largely used to repay a US$120 million
bridge loan that Inkia executed last year to aid the funding of the acquisition
with the planned dividend distributions and capital reduction also expected
to further weaken the debt to book capitalization metric.
The stable outlook assumes a credit supportive outcome of the next tariff
review (January 2019) which along with the implementation of management's
strategy allow the utilities to record combined key metrics that remain
well-positioned within the Ba-rating category according
to the guidelines provided under the Electric and Natural Gas Regulated
Utilities Methodology; Specifically, that the CFO pre-W/C
to debt will exceed 11%, on sustainable basis. This
expectation considers the track-record of prudent financial policies
of Inkia Energy Ltd (Ba3 stable; the controlling shareholder) as
well as the debt incurrence test embedded in the financial documentation,
namely a consolidated net debt to EBITDA of 4.5x (until December
2018) and 4.0x (afterwards) as well as an interest coverage ratio
of 2.0x.
What can change the rating -- Up
Positive momentum on the rating is limited given the utilities'
size and features of their service territory; however, a material
improvement in the key credit metrics could result in an upgrade of the
ratings; Specifically, if the CFO pre-W/C to debt and
Retained Cash Flows (RCF) to debt exceed 22% and 17%,
respectively, on a sustained basis.
What can change the rating -- Down
A downgrade is likely following a downgrade of the sovereign rating and/or
if Moody's perceives that the utilities' relationship with
the Guatemalan authority deteriorates and/or the credit supportiveness
of the regulatory framework deteriorates, for example following
a less credit supportive tariff review outcome and/or the inconsistent
application of regulatory mechanisms that is detrimental for the utilities'
credit quality. A downgrade is also likely if the utilities'
credit metrics are weaker than currently anticipated for example if they
are unable to recover on a timely manner the material increase in planned
investments and/or due to the deterioration of the utilities' operating
performance; Specifically, if the utilities' CFO pre-W/C
to debt and/or interest coverage ratio fall below 10% and 3.0x,
respectively.
The principal methodology used in these ratings was Regulated Electric
and Gas Utilities published in December 2013. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Headquartered in the City of Guatemala, DEORSA and DEOCSA,
on a combined basis, are one of two large energy distributors in
Guatemala. They operate under a 50 year government authorization
which is scheduled to expire in 2048. As of 31 December 2016,
the utilities' aggregated customer base represented approximately
54.3% of Guatemala's regulated distribution customers
while their supplied power accounted for 21% of the total.
Energuate is the trade name for the utilities' collective electricity
distribution business. In January 2016, Inkia (a subsidiary
of IC Power Ltd, unrated), became the controlling shareholder
of DEOCSA (90.6%) and DEORSA (92.7%).
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.
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
Michael J. Mulvaney
MD - Project Finance
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
