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Rating Action:

Moody's upgrades Enersis and Endesa Chile's senior unsecured debt to Baa2; outlook stable

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 are stable.

RATINGS RATIONALE

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 expenditure program.

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) ,

..Upgrades:

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa2 from Baa3

..Outlook Actions:

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

Issuer: Enersis S.A. ,

..Upgrades:

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa2 from Baa3

..Outlook Actions:

....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.

REGULATORY DISCLOSURES

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 Analytics information.

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 for further information.

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.

New York
Natividad Martel
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
A.J. Sabatelle
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades Enersis and Endesa Chile's senior unsecured debt to Baa2; outlook stable
No Related Data.
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