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Rating Action:

Moody's assigns Baa3 to AES Gener's unsecured note offering; outlook is stable

15 Jul 2011

Up to US$475 million of debt securities affected

New York, July 15, 2011 -- Moody's Investors Service today assigned a Baa3 rating to the AES Gener S.A.'s (Gener) planned issuance of up to US$475 million 5.25% 10-year senior unsecured note offering to be issued under a 144(A) registration. The rating outlook is stable.

RATINGS RATIONALE

Gener's Baa3 senior unsecured rating reflects its relevance as the second largest power generation company in Chile and its somewhat geographically diversified operations. The rating further captures Gener's adequate liquidity profile which is further enhanced by the extension of its maturity profile with the completion of the planned debt offering. The rating acknowledges the upcoming end of Gener's substantial capital expenditure (capex) program intended to enhance its energy mix following the challenges posed by the Argentine natural gas curtailments and to address the country's growing power demand.

"The rating factors in our belief that the completion of this capex program will support a more balanced commercial policy that focuses on contracting the output of its efficient fleet which should enhance cash flow predictability over the medium to long-term" said Natividad Martel, Moody's Assistant Vice President.

The rating is capped by Moody's concerns about the ongoing pressure from parent AES Corporation (AES: B1 Corporate Family Rating; positive) for Gener to provide substantial dividend distributions which when coupled with some expected increase in consolidated leverage to complete the company's remaining capex are expected to result in certain key credit metrics being more weakly positioned at the current low investment grade rating. That being said, the rating incorporates our expectation that new investment opportunities to meet the growing power demand in Chile will be prudently funded to include, if necessary, a reduction in the near-term dividend payout ratio, currently expected to be around 100% of net income. To that end, Moody's rating also assumes that Gener will report CFO pre-W/C to debt and interest coverage ratio above 20% and 4x, respectively on a sustainable basis.

Net proceeds from this offering are expected to be used to fund the cash payments under the concurrent Tender and Exchange Offers announced by Gener for its outstanding US$400 million 7.50% Notes due in 2014 (Yankee Bond) and its 8% US$196 million Series Q due in 2019 issued in the local Chilean market. It is our understanding that in conjunction with the Tender and Exchange Offer, Gener is also soliciting consents to amend certain clauses under the current Yankee Bond indenture should any of those notes remain outstanding after the expiration of the tender and exchange. Completion of the consent would eliminate Gener's obligation to comply with substantially all of the more restrictive covenants contained in that indenture that applied if Gener's rating would fall below investment grade, and instead, comply with the terms and conditions of the new senior unsecured notes. We believe that the removal of these covenants, while providing the company additional financial flexibility, may end up being potentially detrimental to bondholders. The final execution of the tender, exchange and consent requires approval by a majority of the bond holders.

Gener's stable outlook reflects the expectation that the improved fleet mix with the scheduled completion of the 270MW Campiche plant scheduled for early 2013 will enhance cash flow and related cash flow predictability over the medium term, and that the issuer will further maintain an adequate liquidity profile. The outlook also incorporates our expectation that Gener will fund any new generation project it may decide to pursue in a conservative manner, so that its credit metrics remain commensurate to the Baa rating category, to include if necessary, accompanying reductions in distributions to AES.

In light of the continued construction of the Campiche and the prospects for additional generation capacity in Chile, given the country's power growth prospects, an upgrade of Gener's ratings over the intermediate term appears less likely.

Given the importance to the company's commercial strategy and the expected enhancement to future cash flow, a substantial delay in the completion of the Campiche facility and/or Angamos' 259MW second unit, could trigger a negative rating action. Various additional factors could pressure Gener's rating including, among others, an unexpected weakening of its consolidated cash flow such that the CFO pre-W/C to debt and CFO pre-W/C interest coverage falls below, 17% and 3.5x, respectively, on a sustainable basis.

The principal methodology used in rating Gemer was Global 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, AES Gener S.A. (Gener) is an operating and holding company of the second largest generation group in Chile (in terms of installed capacity (roughly 22% market share) and the country's largest thermal power generation group. Gener also has operations in Argentina, via TermoAndes, and in Colombia, via the 1,000MW hydro-generator AES Chivor (Chivor; Corporate Family Rating: Ba1; stable). Gener is a 71% indirect subsidiary of the AES Corporation. As of March 31, 2011, Gener had consolidated assets totaling $5.7billion, and recorded last twelve-month FFO of around US$420 million.

REGULATORY DISCLOSURES

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New York
Natividad Martel
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
A.J. Sabatelle
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Baa3 to AES Gener's unsecured note offering; outlook is stable
No Related Data.
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