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Announcement:

No immediate rating implications for Endesa Chile and Enersis from ENEL's proposed reorganization

29 Apr 2015

New York, April 29, 2015 -- Moody's Investors Service said today that the announcement on 23 April 2015, that ENEL Spa (Baa2 stable) had convened the Boards of Directors of Enersis S.A. (Baa2 stable), Empresa Nacional de Electricidad (Endesa Chile; Baa2 stable) and Chilectra S.A. (not rated) to propose a corporate reorganization process at Endesa Chile has no immediate rating implications on the ratings of either Enersis or Endesa Chile. Moody's understands that the proposed reorganization would result in the separation of Endesa Chile from its ownership interests held in several non-Chilean companies including the Colombian Emgesa S.A. (26.9%) and the Peruvian Edegel (total 62.5%).

Endesa Chile's Baa2 rating considers the benefits associated with its geographically diverse operations and sources of dividends from the non-Chilean subsidiaries. During 2014, these distributions aggregated to around US$384million (2013: US$255 million; 2012: US$130million). Collectively, receipt of these dividends helped offset the negative financial impact of the temporary shutdown of Bocamina I (since September 2014) and II (since end of 2013). Loss of these distributions, should it occur, would represent a meaningful change to Endesa Chile's cash flows. As a point of comparison, we calculate that Endesa Chile generated in Chile operating cash flows after net interest expenses of approximately US$310 million for FY 2014 (2013: US$420 million; 2012: USD$131 million).

At this early stage of the process Endesa Chile's future capital structure also remains uncertain.

Endesa Chile's Baa2 rating and stable outlook assume that the company will be able to record credit metrics that remain commensurate with the Baa-rating category according to the guidelines provided under Moody's Unregulated Utilities and Unregulated Power Companies rating methodology. This sets the lower end of the Funds from Operations (FFO) to debt, interest coverage and Retained Cash flow (RCF) to debt metrics at 20%, 4x and 15%, respectively. Achieving these metrics could be challenging if Endesa Chile loses the non-Chilean subsidiaries' dividends without any subsequent reduction in indebtedness. At year-end 2014, Endesa Chile had recorded indebtedness of around US$1.6 billion.

Should the reorganization be implemented, key rating factors will also focus on which legal entity will benefit from the ownership of the non-Chilean power generation asset along with the manner in which the associated transfer will be funded. Also, because of Enersis' ownership interest in Endesa Chile, the potential impact on Enersis' current capital structure and rating remains at this junction unclear. Moody's understands that Enersis has approximately US$1.4 billion of unused capital raising capacity from its March 2013 capital increase.

Headquartered in Santiago, Chile, Enersis S.A (Baa2 stable) is the largest private power holding company in Latin America with a portfolio of ownership stakes in several subsidiaries and affiliates operating in the electric generation, distribution and transmission sectors in five countries.

On the distribution side, Enersis' current economic interests include a 99.1% stake in Chilectra (almost 1.7 million customers in Chile), a 71.6% stake in Edesur (around 2.5 million customers in Argentina) and a 75.5% stake in Edelnor (over 1.2 million customers in Peru), a 48.4% controlling stake in Codensa (over 2.7 million customers in Colombia) as well as a 22.2% stake in the Argentinean transmission company Yacilec.

On the generation side Enersis holds a 60% interest in Endesa Chile (Baa2; stable) which operates a fleet with an installed capacity of 6.4GW in Chile. Enersis acquired the remaining outstanding 50% interest in GasAtacama (US$309 million) in 2014 through Endesa Chile. Endesa Chile also holds ownership-stakes in the Argentinean subsidiaries Endesa Costanera and Hidroelectrica El Chocon (CFR: Caa1/negative) that operate 3.65GW in aggregate installed capacity). Enersis' total stake in the Colombian Emgesa (2.91GW) aggregates to 37.7% including Endesa Chile's direct 26.9% and a 21.6% direct stake acquired as part of Enersis' capital increase completed in March 2013. Enersis also acquired last year an indirect 21.14% interest in the Peruvian Edegel (1.66GW) while Endesa Chile holds directly and indirectly 62.52%.

Additionally, Enersis holds a 84.4% interest in the holding company Endesa Brasil (including Endesa Chile's 37.1% ownership-stake; before 54.3%). The group's indirect subsidiaries in Brazil include the power generation companies Fortaleza (84.4%) and Cachoeira Dourada (84.2%) that have 987MW installed capacity and in the transmission subsidiary CIEN (84.4%). It further holds a 92% interest in the distribution companies Ampla and a 74% stake in Coelce after stepping its investment up by 15% earlier this year (US$242 million).

Since October 2014, ENEL Spa (Baa2 stable) controls Enersis after Endesa Spain (P-2) agreed to sell to Enel Energy Europe its 60.62% direct and indirect ownership interest in Enersis (valuation: EUR8.3 billion). Enersis S.A. currently controls Endesa Chile via its 59.98% ownership-stake. At year-end 2014, Endesa Chile's remaining shareholders included Chilean pension funds (15%), other institutional (19%) and retail investors (3%) as well as ADR-holders (4%).

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Natividad Martel
Vice President - Senior Analyst
Infrastructure 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

William L. Hess
MD - Utilities
Infrastructure 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

No immediate rating implications for Endesa Chile and Enersis from ENEL's proposed reorganization
No Related Data.
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