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
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's confirms Gener's Baa3 rating; upgrades Chivor's ratings to Ba1; outlooks stable
