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Rating Action:

Moody's upgrades Pampa's ratings to B2; stable outlook

04 Dec 2017

New York, December 04, 2017 -- Moody's Investors Service (Moody's) has upgraded Pampa Energia S.A. (Pampa)'s B3 global scale Corporate Family Rating (CFR) and the ratings on its senior unsecured notes to B2 from B3. These actions were based on solid cash flow, particularly in power generation and distribution, and better cash flow visibility in the next two to three years, as per Moody's expectation. The outlook on the ratings is stable.

..Issuer: Pampa Energia S.A.

...Corporate Family Rating, Upgraded to B2 from B3

...Senior Unsecured Global Notes due 2027, Upgraded to B2 from B3

...Senior Unsecured Global Bonds due 2023, Upgraded to B2 from B3

RATINGS RATIONALE

Pampa's cash flow generation has been supported by the favorable regulatory environment in Argentina in the sectors where the company concentrates its business and capital investments, namely power generation & distribution and oil & gas. The implementation of the full power tariff review (RTI), in February 2017, granted for a five-year period, in addition to solid gas prices for new unconventional production, set at import parity levels (equivalent to about two times Henry Hub levels), have allowed Pampa to increase its operating cash flow so far in 2017. However, the company has increased its capital spending leading to greater negative free cash flow.

Because of strong power and O&G industry fundamentals, Moody's expects that Pampa will continue on the current operating and financial track and its credit metrics will continue to improve in the foreseeable future. The company's good liquidity position also supports future capital spending in new projects without increasing debt.

Pampa's B2 CFR considers Moody's estimates of negative free cash flow in 2018, after capital spending in natural gas and power projects, both of which have favorable business prospects in terms of prices and demand; solid retained cash flow to debt, which assumes no dividends in 2018; as well as low foreign exchange risk. Balancing these positives are low interest coverage at about 2 times EBITDA to interest expenses as well as exposure to volatile, highly-regulated power and oil & gas industries in Argentina (B2 stable).

Pampa's liquidity profile is good. The company had a solid amount of cash on hand at September 30, at around USD820 million, which positively compares to USD295 million in debt amortizations from the fourth quarter 2017 to the end of 2018. In the next 15 months, Moody's estimated operating cash flow of USD944 million will not cover USD1 billion in capital spending. However, Pampa's strong cash position provides cushion to fund this small negative free cash flow. It is worth noting that the company estimates that a cash position of about USD100-150 million is reasonable to meet its operating cash needs. Although Pampa does not have a committed revolving credit facility, it counts with availability under its advised banking credit lines.

Foreign exchange risk for Pampa is low since 80% of the company's EBITDA is US-dollar indexed while about 95% of its debt is in US dollars. However, transferability risk is high in Argentina since access to hard currencies is limited.

The stable outlook reflects Moody's expectation that the company will maintain stable cash generation based on solid electricity tariffs and natural gas prices, which are fueled by lower local supply vis-a-vis demand. Moody's believes that Pampa's credit metrics related to debt burden and interest coverage will remain in line with its B2 rating in the next 24 months or more.

Pampa's B2 ratings could be downgraded if the company materially increases its leverage, measured as retained cash flow (funds from operations less dividends) to total debt lower than 10%, or if its interest coverage, as per EBITDA to interest expense, declined to below 2 times. Also, a deterioration of the company's liquidity profile could lead to a rating downgrade.

In turn, a rating upgrade could occur if Pampa's retained cash flow to total debt ratio is higher than 50% and its EBITDA to interest expense rate is above 5 times on a sustainable basis. An upgrade on the ratings of the Government of Argentina would not necessarily translate into an immediate upgrade of Pampa's ratings.

The principal methodology used in this ratings was Independent Exploration and Production Industry published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Pampa is engaged in generation, distribution and transmission of electric power in Argentina as well as on oil and gas production, refining, petrochemicals and hydrocarbon commercialization and transportation in Argentina and, to a lesser extent, in Venezuela. As of September 2017, Pampa was the third largest power generator in Argentina, with approximately 10% market share. In addition, it was the fourth oil and gas producer in the country, with an equity oil and gas production of over 70 thousands of barrels of oil equivalent per day.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 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.

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

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.

Nymia C. Almeida
VP - Senior Credit Officer
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653

Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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