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Rating Action:

Moody's places the ratings of AES El Salvador Trust II bis under review for possible downgrade

17 Nov 2020

Approximately $310 million of debt securities affected

New York, November 17, 2020 -- Moody's Investors Service, ("Moody's") has placed the B2 ratings of AES El Salvador Trust II bis (Trustco II) under review for a possible downgrade.

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; Ba1 stable) unconditionally and severally guarantee the debt of Trust II bis, collectively the guarantors.

On Review for Downgrade:

..Issuer: AES El Salvador Trust II bis

....Corporate Family Rating, Placed on Review for Downgrade, currently B2

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently B2

Outlook Actions:

..Issuer: AES El Salvador Trust II bis

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

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

Trustco II ratings were placed under review for a possible downgrade reflecting the rating action of the sovereign bond rating of the Government of El Salvador, in which the B3 rating was placed under review for a possible downgrade. For more information on the Government of El Salvador, please visit https://www.moodys.com/research/--PR_434918. During the review, Moody's will also closely follow the renewable of the committed $16.5 million line of credit, which supports Trustco II's liquidity.

Trustco II ratings factor in their strong combined credit metrics including a ratio of cash flow pre-working capital changes (CFO pre-W/C) to debt that exceeded 17% for 2019. The metrics are underpinned by the constructive outcome of the 2018-2022 tariff review, a more timely collection of the electric subsidies following the changes implemented in 2017, and the guarantors' cash balance of around $70 million end of June 2020.

In addition, the ratings also take into account that under the terms of the Notes, the structure has a six-month interest only debt service reserve account. It also considers AES' historical track-record of reducing the dividend pressure on its El Salvadorian subsidiaries amid the country's financial and liquidity challenges.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

Trustco II's outlook could be stabilized should the outlook of El Salvador be changed to stable.

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

A downgrade of Trustco II's B2 ratings is likely to follow a downgrade of the sovereign ratings. Downward pressure on the ratings is likely if Moody's perceives a deterioration in the regulatory framework that reduces the predictability and consistency in which the regulation is applied. Negative momentum is also likely if the consolidated key credit metrics deteriorate significantly; specifically, if the consolidated interest coverage ratio and the CFO pre-W/C to debt fell below 2x and 5%, respectively, for an extended period. If the committed line of credit is nor renewed and Moody's concludes that the liquidity profile is no longer appropriate to maintain the one-notch difference between Trustco II's ratings and the sovereign rating could also result in a downgrade.

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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

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.

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
Project & Infrastructure Group
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Alejandro Olivo
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JOURNALISTS: 1 212 553 0376
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​
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