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Rating Action:

Moodys changes Edelnor's outlook to positive

 The document has been translated in other languages

24 Jul 2009

Buenos Aires, July 24, 2009 -- Moody's has changed the rating outlook of Empresa Electrica del Norte Grande S.A. ("Edelnor") to positive from stable.

The outlook change is primarily driven by Edelnor's continued strong performance over the last several quarters as a result of an improved business environment for generators in northern Chile coupled with a commercial strategy executed by its management team that has resulted in a significant increase in Edelnor's contracted dispatch capacity and cash generation within the context of relatively high market prices.

The positive outlook also considered Edelnor's prepayment of its restrictive loan agreement and subsequent reduced leverage and increased financial flexibility. Moody's considers the debt prepayment an important step for Edelnor's pursuit of potential good growth opportunities and expansion scenarios. Finally, the positive outlook reflects Moody's expectation that Edelnor will continue generating strong levels of cash in relation to its relatively low debt and will maintain adequate liquidity.

Edelnor's Ba3 Issuer Rating reflects the company's relatively small size, geographical concentration in only one economic region in Chile, significant exposure to market volatility in the mining sector and commodity exposure to imported coal as its main source of fuel.

In addition, although market developments in the SING pose attractive business opportunities, Edelnor's future growth plans remain undefined. While expected developments in the SING make an expansion of Edelnor's fleet capacity likely to happen, any potential expansion plan will require substantial capital investment that the company will undoubtedly need to fund externally, creating challenges from a financial risk management point of view.

Edelnor currently has a comfortable liquidity position. As of March 2009, cash plus deposits and short term investments amounted to USD 106 million. Those funds plus a two-year tenor bank loan of about USD 50 million were used to prepay the outstandings of USD 117 million under its restrictive loan agreement. Edelnor also expects to issue commercial paper of about USD 20 million to further strengthen its liquidity position.

The rating could be upgraded if Edelnor is able to clearly articulate its plans for future capital expenditures while maintaining a solid financial profile, with FFO to Debt of more than 20% and RCF to Debt of more than 12% on a three-year average basis. Increased fuel and off-taker diversification, together with a further increase in long-term contracted capacity, would also be important for an upgrade.

The rating or outlook could come under negative pressure if Edelnor loses a key off-take contract with one or more mining companies or fails to manage the company's operations in an efficient manner. While Moody's believes that Edelnor will be conservative at defining and executing its future growth plans, a debt financed expansion of material capital expenditures such that FFO to Debt dropped below 12%, RCF to debt fell below 8% or EBITA interest coverage decreased to below 2 times for an extended period could also lead to a downgrade.

Moody's last rating action on Edelnor was on September 30, 2008 when we upgraded the issuer rating to Ba3 from B2.

Edelnor's ratings were assigned by evaluating factors believed to be relevant to its credit profile, such as i) the business risk and competitive position of Edelnor versus others within its industry or sector, ii) the capital structure and financial risk of Edelnor, iii) the projected performance of Edelnor over the near to intermediate term, and iv) Edelnor's history of achieving consistent operating performance and meeting financial plan goals. These attributes were compared against other issuers both within and outside of Edelnor's core peer group and Edelnor's ratings are believed to be comparable to ratings assigned to other issuers of similar credit risk.

Headquartered in Santiago, Chile, Empresa Electrica del Norte Grande, S.A. (Edelnor) is the third-largest independent power generator in the Sistema Interconectado del Norte Grande (SING) region of northern Chile.

The company is publicly traded, but is substantially controlled by GDF Suez and CODELCO. GDF Suez (Aa3, Stable) is one of the largest European integrated utilities, and has a leading position in natural gas in Europe as well as in global LNG and a strong presence in European electricity. CODELCO (A1, Positive) is 100% owned by the government of Chile (A1, Positive) and is the world's largest copper producer.

Buenos Aires
Daniela Cuan
Vice President - Senior Analyst
Global Infrastructure Finance

New York
William L. Hess
Managing Director
Global Infrastructure Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moodys changes Edelnor's outlook to positive
No Related Data.
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