Sao Paulo, May 05, 2017 -- Moody's America Latina Ltda. ("Moody's") today
confirmed the B1 global scale Corporate Family Rating (CFR) of Light S.A.
("Light" or "the company") and the B1 global scale issuer
ratings of its operating subsidiaries Light Serviços de Eletricidade
S.A. ("Light SESA") and Light Energia S.A ("Light
Energia"). At the same time, Moody´s upgraded the national
scale ratings of Light and Light SESA to Baa1.br from Baa3.br,
and of Light Energia to Baa1.br from Baa2.br. The
outlook is positive for all ratings.
RATINGS RATIONALE
The upgrade of the national scale ratings for Light and its wholly-owned
subsidiaries Light SESA and Light Energia to Baa1.br, and
the positive outlook reflects Moody's expectation that Light SESA's
fourth tariff review and concession contract amendments will result in
an improved liquidity profile for the company leading to a sustainable
headroom under financial covenants in the coming quarters. The
rating action also reflects the agency's expectation that Light's
credit metrics will progressively strengthen as a result of the stronger
Cash Flow from Operations before working capital change (CFO pre WC) that
will result from the tariff review and improved consumption trends.
The B1/Baa1.br also reflects : (i) the positive trends that
the company has shown in reducing non-technical losses as illustrated
by an additional 937 GWh energy recovered in the five quarters to Q1 2017
compared to only 288 GWh in the previous five quarters; and (ii)
the relatively stable cash flow profile in Light´s hydropower generation
business, which in 2016 accounted for 31% of the company's
consolidated EBITDA.
On the other hand the B1/Baa1.br incorporates : (i) the still
high energy loss rates in the distribution segment which at 40%
for low voltage non-technical losses compares poorly to rated peers;
(ii) more stringent regulatory requirements of the amended distribution
concession contract which will absorb a significant portion of Light's
operating and capital expenditures in the coming years; (iii) the
company´s relatively high leverage evidenced by a consolidated Net
Debt/EBITDA ratio of 3.7x as of December 2016; and (iv) debt
maturity profile relatively concentrated on the short term.
While Light's operating performance in the distribution segment
(under Light SESA) weakened further in 2016, driven by a 2.3%
year on year decline in energy consumption and leading to a reduction
in CFO pre WC to Debt to 8.2% in 2016, from 8.9%
in 2015, and in CFO pre WC interest coverage to 1.8x in 2016
compared to 1.9x in 2015, Moody's anticipates a progressive
improvement in Light's credit metrics on the back of the new tariff
structure and early progress in loss reduction strategy in the context
of a more supportive macroeconomic environment.
Moody's regards Light's liquidity profile as modest but manageable.
As of 31 December 2016 the company had a consolidated cash position of
BRL 682 million (including BRL 13 million of marketable securities),
and around BRL 1.9 billion of financial debt maturing in the next
12 months. While in the four months to 30 April Light was able
to roll-over a significant portion of its 2017 debt maturities,
the company's debt maturity profile remains relatively concentrated
in the short term, with 47% of outstanding debt due in 2019.
In anticipation that Light's free cash flow generation will remain
moderate in 2017 Moody's expects that the company will continue
to partly rely on debt refinancing to cover its upcoming debt maturities,
in line with the track record of successful debt refinancing that Light
and its subsidiaries have completed over the recent years. The
maintenance of debt at the level of Light's subsidiaries is subject
to the company's ability to comply with a net debt/EBITDA ratio
of 3.75x tested on a quarterly basis. In December 2016 the
company reported a ratio of 3.72x, very close to the required
covenant levels. However Moody's anticipates that the EBITDA
impact of the tariff review will create a more comfortable headroom under
financial covenants in the coming quarters.
WHAT COULD CHANGE THE RATING UP/DOWN
A rating upgrade could be considered should the company successfully extend
the average tenor of its debt maturity profile while demonstrating its
ability to meet the qualitative indicators and loss rates target requirements
imposed by the new concession contract and tariff cycle. Sustained
improvements in operating performance and reduction in leverage resulting
in visible improvements in credit metrics such that CFO pre WC / Debt
exceeds 15% and CFO pre WC Interest coverage reaches 3.0x
would also exert upward rating pressure.
In light of the positive outlook a rating downgrade is unlikely in the
near term. A rating stabilization could result from a weakening
of the company's metrics such that CFO pre WC interest coverage remains
sustainably below 2.5x and/or CFO pre-WC to Debt remains
below 14% on a sustainable basis.
Headquartered in Rio de Janeiro - Brazil, Light S.A
is an integrated utility company with activities in generation,
distribution and commercialization of electricity. In 2016 Light
SA reported BRL8.8 billion in net revenues (excluding construction
revenues) and close to BRL 1.4 billion in EBITDA respectively.
Light S.A is ultimately controlled by Companhia Energetica de Minas
Gerais ("CEMIG", rated B1/Baa1.br, negative),
the company's major shareholder with a direct and indirect stake of 43.4%
in Light S.A.
The principal methodology used in rating Light S.A.,
and Light Servicos De Eletricidade S.A. was Regulated Electric
and Gas Utilities published in December 2013. The principal methodology
used in rating Light Energia S.A was Unregulated Utilities and
Unregulated Power Companies published in October 2014. Please see
the Rating Methodologies page on www.moodys.com.br
for a copy of this methodology.
Moody's National Scale Credit Ratings (NSRs) are intended as relative
measures of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale credit ratings in that they are
not globally comparable with the full universe of Moody's rated entities,
but only with NSRs for other rated debt issues and issuers within the
same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060333.
REGULATORY DISCLOSURES
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's information.
Information types used to prepare the rating are the following:
financial data, economic and demographic data, operating data,
and public information.
Sources of Public Information: Moody's considers public information
from many third party sources as part of the rating process. These
sources may include, but are not limited to, the list available
in the link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_193459.
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The date of the last Credit Rating Action for Light S.A.
was 17/3/2017
The date of the last Credit Rating Action for Light Servicos De Eletricidade
S.A was 17/3/2017
The date of the last Credit Rating Action for Light Energia S.A.
was 17/3/2017
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Paco Debonnaire
Analyst
Infrastructure Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653
Michael J. Mulvaney
MD - Project Finance
Project Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
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