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Global Credit Research - 25 Apr 2011
Approximately $1.5 billion of debt securities affected
New York, April 25, 2011 -- Moody's Investors Service today upgraded the senior unsecured ratings
of Enersis, S.A (ENI) and Empresa Nacional de Electricidad,
S.A. (Endesa Chile) to Baa2 from Baa3. These rating
actions conclude the review for possible upgrade that commenced on September
29, 2010. The rating outlooks for Enersis and Endesa Chile
The upgrade of Enersis and Endesa Chile's senior unsecured ratings
largely reflects each issuer's strong consolidated credit metrics,
and our expectation that both companies' future financial performance
will continue to remain consistent with the Baa rating category despite
an expectation for some degradation in near-term financial performance
due to lower margins in certain markets. The upgrade factors in
our belief that internal cash flow generation will remain robust and that
dividend policy will continue to be conservative resulting in no substantial
increase in leverage to fund the tail end of Endesa Chile's capital
The ratings upgrade also considers Endesa Chile's commercial policy
that we believe continues to be sensible in all the markets where it and
its subsidiaries operate. For example, in Chile as the largest
owner of hydroelectric (hydro) generation in a country with substantial
hydro capacity, the company 's overall contracted position
continues to be lower than its likely output, which enables Endesa
Chile to more easily manage through its contractual position during drought
conditions; such as the one that still prevails today in the country.
This strategy has been aided further by the additions to Endesa Chile's
thermal fleet over the last few years as well as its access to liquefied
natural gas (LNG) via its interest at the Quintero re-gasification
plant. As such, we observe that spot market purchases to
satisfy contractual obligations has been fairly modest despite the government's
decree implemented earlier this year to maintain minimum hydro reserve
levels at certain dams across Chile. Moody's also observes
that certain indexation clauses embedded in Endesa Chile's power
purchase agreements and other risk management initiatives help to enhance
cash flow predictability which reduces potential cash flow volatility
that often exists in the cyclical power generation business.
In the case of Enersis, the group's consolidated cash flows
are further supported by the operations of the regulated subsidiaries,
which generally provides a source of predictable earnings and cash flow.
Aside from the Brazilian subsidiaries, the bulk of Enersis'
utilities underwent reviews of their distribution tariffs relatively recently
with the next one scheduled for the end of 2012 at Chilectra, its
Chilean distribution company. Enersis' rating incorporates
the degree of structural subordination that exists at the parent with
outstanding holding company debt representing around 14% of Enersis'
consolidated debt. This degree of structural subordination is offset
by the modest amount of debt that exists at Chilectra, and the full
access, we understand, Enersis has to its cash flows.
The ratings upgrade further factors in our reduced concerns about the
pressure that the ultimate parent company, ENEL (A2; under
review for possible downgrade) may place on Enersis and Endesa Chile to
provide cash distributions. We observe that the current dividend
payout ratio represents 50% of the 2010 distributable net income.
We further acknowledge that ENEL's public de-leveraging objectives
are evaluated in terms of net debt which we believe deters Enel from greatly
increasing distributions from its Latin American operations given the
sizable minority ownership that exists and negative impact on cash balances
that would occur if such distributions were substantially increased.
As a result, Enersis and Endesa Chile reported sizeable consolidated
cash and short-term investments at year-end of US$2.1
billion and US$711 million, respectively.
These cash balances also help to underpin both company's liquidity
profile and our rating upgrade incorporates a view that such cash balances
will remain robust balancing the company's decision to allow portions
of its existing credit facilities expire. In November 2010,
Endesa Chile did not renew a US $250 million revolver and we understand
that the company will not renew its US$ 200 million facility that
expires in July 2011. As a result, Enersis' aggregate facilities
will decline to around US$500 million out of which about US$300
million represents bank commitments to Endesa Chile. While both
companies have sizeable debt maturities over the next twelve months,
the vast majority of the maturities are local currency maturities which
we expect to be refinanced in the local currency market.
Enersis' and Endesa Chile's stable outlook reflects our expectation
that the consolidated financial metrics will remain well-positioned
within the Baa category, and captures an expectation that group
leverage to fund any new electric project under consideration will be
prudently managed. The stable outlook presumes that Enersis and
Endesa Chile will manage its liquidity carefully including the maintenance
of robust cash balances. Should such cash balances decline due
to greater capital investment or increased dividends, the stable
rating outlook incorporates our expectation that such cash liquidity would
be replaced by multi-year credit facilities that contain little
or no conditionality around new money advances. To that end,
the stable outlook factors in the expectation that Enersis and Endesa
will renew all or a substantial portion of the remaining three committed
credit facilities well ahead of the December 2012 expiry date.
The rating could be upgraded if Enersis and Endesa Chile report a substantial
improvement in the consolidated credit metrics, such that their
consolidated retained cash flow (RCF) to debt and free cash flow (FCF)
to debt exceed 20% and 10%, respectively, on
a sustainable basis. Additionally, consideration of any upgrade
would require our understanding and satisfaction with the company's
long-term liquidity strategy, which we believe remains in
flux and in the past, has not been handled in a consistent way.
Downward rating pressure could surface from sustained weakened financial
performance, resulting from a substantial deterioration in cash
flow generation, and/or alteration of their current distribution
policy and/or material increase in leverage to fund any new project that
they may pursue. Quantitatively, downgrade pressure could
also arise if Enersis' and Endesa Chile's CFO pre W/C interest
coverage ratio fell below 3.5x or the RCF to debt ratio were to
fall below 15% on a continuous basis. Additionally,
negative rating pressure could surface if either company's liquidity
profile is stressed by a further reductions in external sources of liquidity
without an accompanying increase in cash balances or alternatively,
a substantial reduction in balance sheet cash without a supplementary
increase in the amount of credit facilities.
Issuer: Empresa Nacional de Electricidad, S.A.(Chile)
....Senior Unsecured Regular Bond/Debenture,
Upgraded to Baa2 from Baa3
....Outlook, Changed To Stable From
Rating Under Review
Issuer: Enersis S.A. ,
....Senior Unsecured Regular Bond/Debenture,
Upgraded to Baa2 from Baa3
....Outlook, Changed To Stable From
Rating Under Review
The principal methodology used in rating was Global Unregulated Utilities
and Power Companies Industry Methodology, published August 2009.
Headquartered in Santiago, Chile, Endesa Chile is a leading
wholesale power generation company in Latin America, with operations
in Chile, Colombia, Peru and Argentina and holds a 38.88%
ownership stake in Endesa Brasil. At year-end 2010,
Endesa Chile had total assets of over US$12 billion. Endesa
Chile's controlling shareholder is Enersis via its 60% ownership
stake. Also headquartered in Santiago, Enersis is the largest
private power holding company in Latin America with a portfolio of ownership
stakes in subsidiaries and affiliates operating in the electric generation
(via Endesa Chile) as well as regulated distribution and transmission
in Chile, Peru, Colombia, Argentina and Brazil.
At year-end 2010, Enersis reported consolidated assets of
over US$27 billion. Following the purchase of Endesa S.A.
during 2009, ENEL, SpA (ENEL; Issuer Rating: A2/P-1;
under review for possible downgrade) is Enersis' indirect controlling
shareholder via its 61% stake in Endesa Latinoamerica in which
ENEL has an indirect 92% interest.
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
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
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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.
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades Enersis and Endesa Chile's senior unsecured debt to Baa2; outlook stable
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