New York, December 03, 2020 -- Moody's Investors Service, ("Moody's") today assigned first-time
Ba3 corporate family rating to EnfraGen LLC (EnfraGen) and to its proposed
$710 million 10-year bullet Senior Secured Notes issued
by EnfraGen Energia Sur, S.A.U. A stable outlook
has been assigned to both entities.
The notes will be issued, jointly and severally by EnfraGen Energía
Sur, S.A.U., Prime Energía SpA
and EnfraGen Spain, S.A.U. (the co-issuers),
three privately-held companies and subsidiaries of EnfraGen,
the parent company. The senior secured notes will rank pari passu
with a 5-year $ 725 million senior secured loan, or
a total outstanding debt of $1,435 million. Proceeds
of the transaction will be used to refinance existing debt, fund
the acquisition of a portfolio of operational solar projects in Chile,
fund the acquisition of project Phoenix, reserves and pay transaction
costs and other transaction expenses.
The assigned ratings reflect the issuer's well diversified operations
in the power markets in three different jurisdictions in Latin America
(Government of Colombia Baa2 Stable, Government of Chile A1 Negative
and Government of Panamá Baa1 Negative). The regulatory
frameworks in those countries are developed, well-designed
and with a track record of supportive regulations that we expect to remain
largely in place over the coming years. Importantly, most
of the company's future revenues will be derived from reliability
and capacity charges designed to provide security to the power markets
in which it operates, that are mainly dependent on highly variable
energy sources (hydro and solar). Furthermore, EnfraGen's
Chilean operations will support the country's decarbonization plans
through the penetration of solar and the accelerated retirement of coal
facilities. Nevertheless, the credit profile also incorporates
the challenges that evolving market dynamics could present over a longer
time horizon given Enfragen's fuel concentration in gas and diesel.
Further expansion in the renewable space while positive, provides
limited credit uplift given their still relatively low share within the
overall business mix.
The assigned ratings also consider the company's relatively simple
investment plan in terms of technology, which nevertheless calls
for a rapid expansion of its current installed capacity. The adequate
historical operating performance of the assets in the portfolio is also
factored in our credit view.
The ratings are tempered by an aggressive financing structure that entails
very high initial leverage, with a ratio of debt to EBITDA (before
all projects become operational) of 9 times, little amortization
of the debt over the life of the notes -via cash sweeps-
and large distributions to shareholders during the initial years of the
transaction. High leverage will pressure credit metrics over the
life of the transaction with an average interest coverage in the range
of 1.8 to 2.0 times; cash from operations to debt in
the 4.5%-6% range and negligible retained
cash flow to debt during the first years of the financing due to distributions
of excess cash (in the 3% range thereafter). While cash
sweeps and mandatory amortization will result in a reduction of leverage
(debt to EBITDA around 5 times in 2030), the total debt amortization
is expected to reach 35% of initial debt by year 10, exposing
noteholders to material refinancing risks.
Nevertheless, the assigned ratings take into consideration the several
structural protections included in the financial documents that provide
enhancement to creditors, namely a six-month debt service
reserve account, a one month O&M reserve account limitations
to additional debt; limitations to business activity; restricted
payments test and several cash sweep mechanisms, starting in year
3, that seek to reduce debt by 35% by the bond's maturity
The stable outlook reflects our view that EnfraGen will maintain sound
operations across its portfolio and stable cash flows mainly from regulated
reliability and capacity charges. Specifically, we expect
EnfraGen will be able to produce CFO (pre working capital) to debt in
the range of 3.5 to 4.5%, interest coverage
above 1.5 times and positive levels of retained cash flow (RCF).
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given our expectation of weak credit metrics, we see limited potential
for an upgrade. However, if EnfraGen is able to reduce debt
faster than expected, leading to a ratio of CFO to debt and RCF
to debt higher than 8% and 5% respectively we could upgrade
We could downgrade the ratings if the operating performance of the assets
is below expectations or if an adverse market or regulatory development
were to weaken EnfraGen's cash flow generation. Specifically,
interest coverage below 1.3 times, CFO to debt below 3%,
or negative retained cash flow for could creative negative pressure on
The principal methodology used in these ratings was Unregulated Utilities
and Unregulated Power Companies published in May 2017 and available at
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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provides certain regulatory disclosures in relation to the provisional
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Vice President - Senior Analyst
Infrastructure Finance Group
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Associate Managing Director
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Moody's Investors Service, Inc.
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