New York, June 15, 2012 -- Moody's Investors Service downgraded the foreign currency ratings of Empresa
Nacional del Petróleo's (ENAP) to Baa2 from Baa1. The rating
outlook is negative.
RATINGS RATIONALE
The rating downgrade reflects ENAP's elevated financial leverage and highly
volatile earnings. ENAP's recent financial performance has
been below expectations, with the generation of negative EBITDA
over the last two quarters and rising debt levels. While we expect
ENAP to post positive EBITDA for the full year 2012, financial leverage
is expected to remain high relative to peers and given its exposure to
the import-dependent Chilean refining sector.
The negative outlook reflects that, even with the assumption of
improved profitability over the near-term, ENAP's financial
leverage could remain high for the underlying baseline credit assessment
and Baa2 rating. In addition, the company has very high refinancing
needs. Without a significant capital infusion from the Chilean
government, we believe the company will be challenged in materially
reducing debt levels to a level more consistent with its underlying credit
assessment.
ENAP's performance deteriorated over the last two quarters mainly
as a result of rapidly rising crude oil prices, narrowing spreads
between lighter and heavier crude oils, and rising energy costs.
Moody's expects the recent decline in crude oil prices and more
supportive crude discounts should help support a return to positive EBITDA
generation for the company over the near-term. We also note
that ENAP has undertaken several initiatives in order to improve its cost
structure, including undertaking certain management changes,
and continues to focus on improving profitability levels. In addition,
we expect ENAP will have lower LNG import costs in 2013, which will
materially lower its energy costs.
If ENAP is unable to meaningfully strengthen its financial profile over
the near term, its baseline credit assessment could be lowered,
resulting in a downgrade of its Baa2 foreign currency rating. The
Baa2 rating could also be pressured without demonstrated clear financial
support by the government of Chile.
While a rating upgrade is unlikely over the near-term, a
significantly improved sustainable financial leverage profile more supportive
of the cyclicality and volatility of the refining sector could have positive
rating implications over the medium term (permanent debt reduction of
at least $1 billion).
The ratings downgrade is the result of the lowering of ENAP's underlying
baseline credit assessment. Moody's lowered ENAP's underlying baseline
credit assessment to 14 (mapping to a B1 rating) from 12 (mapping to a
Ba2 rating). Since ENAP is 100% owned by the Chilean state,
ENAP's foreign currency rating reflects the application of Moody's joint
default rating methodology for government-related issuers (GRIs).
ENAP's rating combines: (i) ENAP's underlying baseline credit assessment,
and (ii) the willingness and ability of the government of Chile to provide
credit support to ENAP in a distress situation. The Chilean government's
ability to provide support to ENAP is measured by its Aa3 local currency
rating and stable outlook, weakened somewhat by the medium dependence
of the government and the company on credit factors that could cause stress
on both simultaneously. Moody's considers the government's willingness
to support the company as high, considering the strategic importance
of ENAP to the Chilean economy, ENAP's 100% ownership by
the state, and the government's involvement in the company's budget
approval and other policy-related processes.
The principal methodology used in rating Empresa Nacional del Petróleo
was the Global Refining and Marketing Industry Methodology published in
December 2009. Other methodologies used include the Government-Related
Issuers methodology published in July 2010. Please see the Credit
Policy page on www.moodys.com for a copy of these methodologies.
Empresa Nacional del Petróleo is Chile's national oil company.
It is headquartered in Santiago, Chile.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, 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 has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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.
Information sources used to prepare the 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 considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a 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 the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 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.
Gretchen French
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades Empresa Nacional del Petroleo's (ENAP) ratings to Baa2; outlook negative
