New York, December 31, 2020 -- Moody's Investors Service, ("Moody's") today
changed Empresa Distribuidora y Comercializadora Norte S.A.
(Edenor)´s rating outlook to negative from stable and affirmed its
Caa3 corporate family and senior unsecured ratings. At the same
time Moody´s also affirmed Pampa Energía S.A.
(Pampa) Caa3 corporate family and senior unsecured ratings, with
a stable outlook.
The action follows Pampa's announcement of the sale of its controlling
interest in Edenor to Empresa de Energía del Cono Sur S.A.
The transaction cash price was set at $ 95 million and Pampa will
receive $5 million cash seven days after the announcement of the
transaction; $50 million at the closing date and $
40 million at the first anniversary of the closing plus a payment in kind
of 21,876,856 Class B shares, representing 2.41%
of the capital stock and voting rights of Edenor. The transaction
is subject to regulatory approval and Pampa's shareholders approval.
Pending Pampa's shareholders meeting and regulatory approvals,
the transaction will trigger a change of control (CoC) offer to Edenor's
bondholders that will require the repurchase of the total outstanding
of the notes ($ 98 million). While Edenor's cash position
(ARS 9 billion as of September or the equivalent to USD 105 million) could
allow for the cash payment of the notes, the current Central Bank
restrictions on access to foreign currency could complicate or inhibit
timely execution of the change of control repurchase. This risk
along with the uncertainties on how the CoC offer will be handled by the
new owners are reflected in the revision of Edenor's rating outlook
The negative outlook for Edenor also incorporates the potential for a
protracted period of weak cash flow generation resulting from the regulator's
extension until at least March 2021 of the tariff freeze and the government's
recent announcement to initiate a tariff review process during next year
that could result in an extended period of frozen tariffs.
Pampa's ratings affirmation and stable outlook takes into consideration
that while Pampa's size, footprint and revenues will be significantly
reduced after the sale of Edenor, it will continue to benefit from
the revenues and profits of its other businesses that have proven to be
more stable than those provided by Edenor. While Edenor's
revenues represent a significant portion of the companies' consolidated
sales, profits and cash flows provided by EDENOR have been declining
and are not expected to improve until an electric distribution tariff
regime that compensates for its increased costs is in place. The
recent increase in gas prices granted under the last Plan Gas implemented
by the government will further enhance Pampa's cash flows and profits
from other businesses. In addition, Pampa's senior
unsecured notes were issued under Pampa's restricted group (Pampa RG),
that is, excluding Edenor and other affiliates where Pampa does
not have control and therefore Edenor's sale will not change the
sources of cash for debt repayment.
Pampa's Caa3 ratings and stable outlook continue to reflect the
strong credit linkages and the exposure the company has to Argentina's
regulations and operating environment. Pampa's stable outlook
also anticipates that the company will be able to sustain its cash generation
capacity and low leverage, with a ratio of CFO (pre WC) to debt
in the range of 15-20% and debt to EBITDA below 3.5
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given Edenor's negative outlook, a rating upgrade is unlikely.
A ratings stabilization for Edenor would require that the company is able
to improve its free cash flow generation and timely meet all obligations
related to its existing debt, particularly considering the events
that will be triggered by the proposed transaction.
Increased visibility on the company's tariff regime going forward
would be an important consideration for a ratings stabilization.
Considering the current constraining factors, a rating upgrade for
Pampa is unlikely in the short term. However, an upgrade
of the sovereign coupled with improved operating conditions in the power
and energy sectors could create positive rating pressure.
Further deterioration in the operating environment or a significant negative
shift in policies or regulations for the companies in the power and energy
sectors will likely result in negative pressures on Pampa's ratings.
Empresa Distribuidora y Comercializadora Norte S.A (Edenor),
headquartered in Buenos Aires, Argentina, is the country's
largest electricity distribution company covering a major portion of Buenos
Aires and its northern suburbs, serving about 3.1 million
clients and supplying approximately 20% of the country's total
electricity consumption. Under the terms of Edenor's concession,
it has the monopoly to distribute electricity within its license area
and enjoys the strongest market position within the country in terms of
number of clients and electricity consumption.
Pampa Energia S.A. (Pampa) is an integrated energy company
in Argentina, engaged in the generation, distribution and
transmission of electric power, as well as in E&P, and
petrochemicals and hydrocarbon commercialization and transportation.
Since 2018, when Pampa started divesting its oil business,
its focus was reoriented to the expansion of its power generation,
to the production of natural gas, mainly development and exploitation
of unconventional gas reserves (mostly tight gas). For the 12 months
that ended September 2020, more than 70% of its EBITDA was
generated by power generation and gas production.
The principal methodology used in rating Empresa Distribuidora y Com.
Norte S.A. was Regulated Electric and Gas Utilities published
in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1072530.
The principal methodology used in rating Pampa Energia S.A.
was Unregulated Utilities and Unregulated Power Companies published in
May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1066389.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
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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Vice President - Senior Analyst
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