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Rating Action:

Moody's downgrades AES El Salvador Trust II to Caa2; outlook negative

05 May 2022

New York, May 05, 2022 -- Moody's Investors Service ("Moody's") has downgraded the ratings for AES El Salvador Trust II bis (Trustco II) to Caa2 from Caa1. The outlook remains negative.

Downgrades:

..Issuer: AES El Salvador Trust II bis

.... Corporate Family Rating, Downgraded to Caa2 from Caa1

....Gtd. Senior Unsecured Regular Bond/Debenture, Downgraded to Caa2 from Caa1

Outlook Actions:

..Issuer: AES El Salvador Trust II bis

....Outlook, Remains Negative

RATINGS RATIONALE

The downgrade of the ratings of Trustco II to Caa2 from Caa1 with a negative outlook reflects the May 4 downgrade of the sovereign bond rating of the Government of El Salvador to Caa3 from Caa1 with negative outlook. For more information on the Government of El Salvador, please visit https://www.moodys.com/research/Moodys-downgrades-El-Salvadors-ratings-to-Caa3-from-Caa1-maintains--PR_464838.

Trustco II ratings factor in heightened refinancing risk for the $310 million Notes that will mature in March 2023, given the current challenging financing conditions in the local and global markets. The ratings also take into account Moody's expectations that Trustco II's liquidity position will be tight in 2022, indicating a higher likelihood of a default event.

As of December 2021, the notes' guarantors had $38 million of cash balance on a combined basis, together with an expected internal cash generation of $60 million in the 12-month period through December 2022. This will not be sufficient to cover Trustco II's liquidity needs, including working capital requirements, capital expenditures and debt maturities of around $340 million. For Trustco II's liquidity assessment, Moody's also considers that under the terms of the Notes, the structure has a six-month debt service reserve account covering interest only and $16.5 million of committed credit facilities available.

The ratings acknowledge that the guarantors benefit from an interest income of approximately $11 million per year on two intercompany loans amounting to $183.4 million from The AES Corporation (AES, Baa3 stable) in connection with their acquisition. The ratings also consider AES' historical track-record of support through the reduction in the dividend payments from its El Salvadorian subsidiaries amid the country's financial and liquidity challenges.

The strong market position of the guarantors, as providers of the essential electricity distribution service with predictable revenue streams, are balanced by the dependence on timely subsidies from the Government of El Salvador (Caa3 negative), which exposes the company to the sovereign credit quality.

The negative outlook reflects Trustco II's weak liquidity and refinancing risk, with debt obligations maturing in 2023 along with Moody's rating outlook of El Salvador's sovereign rating.

In terms of environmental, social and governance (ESG) factors, Moody's considers that Trustco II has low carbon transition risks within the regulated utility sector given their transmission and distribution-only utility operations and lack of any direct exposure to fossil-fuel generation. However, it is exposed to potential regulatory changes, a social risk.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded or stabilized if the company extends its debt maturity profile or improve liquidity cushion ahead of upcoming debt maturities. Further downgrade pressure could materialize upon Moody's views that expected recovery for Trustco II's creditors is weaker than anticipated or a deterioration in the credit quality of El Salvador. In addition, downward pressure on the ratings is likely if there is a deterioration in the regulatory framework that reduces the predictability and consistency with which the regulation is applied.

Trustco II issued the 10-year $310 million senior global notes due in 2023 for the benefit of four affiliated electric distribution companies in El Salvador: Compania de Alumbrado Electrico de San Salvador, SA de CV (CAESS), Empresa Electrica de Oriente, S.A. de C.V. (EEO), AES CLESA S. en C. de C.V. (CLESA) and Distribuidora Electrica de Usulutan (DEUSEM). These four distribution utilities which are majority owned by The AES Corporation (AES; Baa3, stable) unconditionally and severally guarantee the debt of Trust II bis, collectively the guarantors.

The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1072530. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Roxana Munoz
Asst Vice President - Analyst
Infrastructure Finance Group
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Cristiane Spercel
Senior Vice President/Manager
Infrastructure Finance Group
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
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JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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