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Rating Action:

Moody's confirms Gener's Baa3 rating; upgrades Chivor's ratings to Ba1; outlooks stable

20 Apr 2011

Approximately US$ 570 million of debt securities affected

New York, April 20, 2011 -- Moody's Investors Service confirmed today the Baa3 senior unsecured rating of AES Gener S.A. (Gener), and upgraded the corporate family rating (CFR) and senior unsecured rating of AES Chivor & Cia. S.C.A. E.S. P. (Chivor) to Ba1 from Ba2. The rating action concludes the rating review for Gener, which had been placed under review for possible downgrade on October 29, 2010. The rating outlook for Gener and Chivor is stable.

Upgrades:

..Issuer: AES Chivor & Cia. S.C.A. E.S.P.

.... Corporate Family Rating, Upgraded to Ba1 from Ba2

....Senior Secured Regular Bond/Debenture, Upgraded to Ba1 from Ba2

Outlook Actions:

..Issuer: AES Gener S.A.

....Outlook, Changed To Stable From Rating Under Review

Confirmations:

..Issuer: AES Gener S.A.

....Senior Unsecured Regular Bond/Debenture, Confirmed at Baa3

RATINGS RATIONALE

Gener's rating confirmation largely reflects the fact that construction activities at the 270MW coal-fired Campiche facility resumed in late 2010 after the Valparaiso Court of Appeals dismissed the two constitutional protection actions filed against the construction permit granted in August 2010 by the Puchuncavi Municipality. Construction at the facility had been on hold since June 2009, and its completion is now scheduled for early 2013.

"We view the scheduled completion of the Campiche plant in early 2013 as an important milestone for Gener since it further enhances the efficiency of its generation fleet and the long-term cash flow predictability" said Natividad Martel, a Moody's analyst. Moody's rating action factors in the continuation of the related construction risk along with the recognition that output from Gener's efficient fleet will not fully meet contractual obligations during 2012.

In addition to the favorable developments on Campiche, the rating confirmation considers the expected improvement in cash flows and the related reduction in contingent obligations from the settlement executed between Gener's subsidiary, Electrica Santiago (EESA) and three natural gas transportation companies which resolves the several-year litigation that had existed between the parties. The use of LNG at ESSA's plant Nueva Renca has further improved its financial performance, as Gener is now able to generate positive margins from this plant during the current period of extreme dry conditions in the Central Interconected System (SIC).

Nevertheless, Gener rating is capped by our assessment of the company's projected credit metrics, particularly retained cash flow (RCF) to debt and free cash flow (FCF) to debt which remain weak for the rating category reflecting the company's capital expenditure program for the next few years as well as expected pressure from AES Corporation (AES; CFR: B1; positive outlook) on Gener to make substantial dividend distributions over the next several years.

The upgrade of Chivor's CFR and senior unsecured debt to Ba1 reflects the companies' strong standalone financial performance and relative stable cash flow that is underpinned by the company's commercial policy during the severe El Niño 2009/2010 phenomena. These factors are somewhat offset by the business concentration risk that exists at Chivor in terms of its ownership of a single asset with one fuel source in one geographic region. The rating action further considers today's rating confirmation of Gener's Baa3, since both ratings are highly interrelated given Gener's reliance on Chivor's dividends and capital calls (reductions) to fund the remainder of its capital expenditure program. Despite the increased pressure to upstream funds and the relatively modest capital outlays associated with Chivor's 20 MW new hydro-facility, Moody's anticipates that Chivor will continue to be free cash flow positive over the near to medium term, and will continue reporting strong credit metrics for its current rating category, such that its RCF to debt and FCF to debt are at least 15% and 12%, both on a sustainable basis.

Gener's stable outlook reflects the expectation that the improved fleet-mix with the scheduled completion of the Campiche plant will enhance cash flow and related cash flow predictability over the medium term, and that the company will maintain 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 Campiche and the prospects for additional generation in Chile, given the country's growth prospects, an upgrade of Gener's ratings over the intermediate term appears less likely.

Given the importance to the company's commercial and cash flow enhancement strategy, a substantial delay in the completion of the Campiche, and the Angamos unit II plants, which is scheduled for completion in October 2011, 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.

Chivor's stable outlook reflects the improving political and macroeconomic conditions in Colombia. It also reflects our assessment of certain improvements in the market framework which underpin the company's strong financial profile, as well as the implementation of a commercial policy that offsets its substantial business concentration risks.

In light of the concentration of the single asset risk in a region where volatility can impact financial results, an upgrade in the near-term is not likely. That said, we recognize that Chivor continued to de-lever its balance sheet, which does help to offset the potential volatitlity in earnings and cash flow that has historically existed. Factors that could raise the ratings include a further improvement in its operating cash flow, such that it reports a RCF to debt in the high twenties and a FCF to debt above 20%, on a sustainable basis.

Factors that could create downward rating pressure include: a significant deterioration in Colombia's political and economic environment, changes to the country's regulatory framework that have an adverse impact on the power markets and Chivor, a significant and prolonged devaluation of the Colombian peso vis-à-vis the U.S. dollar that renders Chivor's hedging strategy inadequate, and a substantial increase in leverage at the Chivor level. In addition, if the rating of Gener was to experience a downgrade, the rating of Chivor could be affected.

The principal methodology used in this rating was Global Unregulated Utilities and Power Companies published in August 2009.

Headquartered in Santiago de Chile, Gener is Chile's second-largest electricity generation company and is 71%-owned by AES and 29% by Chilean public shareholders. At year-end 2010, Gener reported consolidated assets amounting to approximately US$5.7 billion.

Headquartered in Bogota, Chivor is a wholesale power generation company (1,000MW installed capacity) in Colombia (FC Gov. bond: Ba1). Since 1996, it is a wholly-owned subsidiary of Gener and since 2001 an indirect subsidiary of AES. At year-end 2010, Gener reported consolidated assets amounting to approximately US$1.6 billion.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Natividad Martel
Analyst
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

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

Moody's confirms Gener's Baa3 rating; upgrades Chivor's ratings to Ba1; outlooks stable
No Related Data.
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