CHICAGO & BOGOTA--(BUSINESS WIRE)--Fitch Ratings has affirmed Golden Americas Ltd's (GA) foreign currency Issuer Default Rating (IDR) at 'B+' and its US$14.4 million note issuance due 2018 at 'B+/RR4' . The Rating Outlook is Stable.
GA's ratings reflect the company's minority shareholder position in Termobarranquila (TEBSA), as well as the structural subordination of its debt to that of LEASECO. Positively, the ratings factor in TEBSA's relatively stable and predictable cash flow, which is used to service interest payments, as well as GA's moderate debt levels.
Structural Subordination Limits GA's Rating
GA is a vehicle created to raise funds to finance the acquisition of TEBSA. As a result, it is in a highly subordinated position relative to the cash flow of its operating subsidiary, TEBSA. Through a structured agreement, TEBSA makes lease payments to LEASECO, which are used to serve about USD13.3 million of secured debt obligations. LEASECO then forwards the remaining proceeds, if any, to an intermediate holding company called Golden Gate (GG), in which GA has a 26.3% stake. This structure diminishes GA's ability to control the flow of dividends used to service its US14.4 million of financial debt.
Although GA does not control GG, the company does benefit from a shareholders' agreement that allows the company to appoint two of the five members of GG's board of directors. GA is mandated by its debt covenants to vote against allowing GG to enter into any indebtedness if proceeds from such borrowing are not associated with an increase in capacity or the refinancing of existing debt. Should the intermediate holding company (GG) issue any debt, it will further increase GA's structural subordination to its cash flow, therefore negatively affecting GA's credit quality.
Stable and Predictable Cash Flow Generation
TEBSA's cash flow is considered to be stable and predictable, reflecting a well-structured power purchase agreement (PPA) between TEBSA and state-owned utility GECELCA (Fitch National Scale Rating of 'AA-(COL)', with a Positive Outlook). This 20-year PPA, which is based on fixed capacity payments and compensation for start-ups, has been in existence since 1996 and accounts for the bulk of TEBSA's revenues. These payments are estimated to amount to approximately USD50 million per year through 2015. TEBSA, in turn, uses the proceeds from the PPA to cover fixed costs of about USD12 million per year and used to service its lease agreement with LEASECO. As a result of this structure and while the PPA continues, the credit quality of GA and GECELCA are essentially linked.
TEBSA's standalone credit quality is supported by its competitive position as the largest thermoelectric generation plant in Colombia with 21% of the thermoelectric installed capacity. TEBSA's capacity represents half of the total capacity for the Atlantic coastal area and its facilities are critical to the region's energy stability. Consequently, TEBSA enjoys a competitive advantage over comparable local thermal generators as reflected in the actual dispatch of the facility. Its credit quality also benefits from its relationship with its off-taker, GECELCA. TEBSA's 918 megawatts (MW) of installed thermoelectric capacity is primarily located on Colombia's Atlantic Coast. TEBSA receives its fuel needs from GECELCA under terms also outlined in the PPA, which mitigates the company's exposure to fuel cost risk and adds to cash flow stability and predictability.
As of Dec. 2010, TEBSA reported a negative EBITDA of US$18,6 million and total subordinated debt of US$61 million. TEBSA's weak EBITDA reflects both the onerous lease payments to LEASECO which are accounted for as operating cost and the declining PPA payments from GECELCA, which have bottomed at US$50 million in accordance with the preset capacity payment schedule.
Conservative Debt Level and Credit Metrics
GA's credit protection metrics are considered adequate for the assigned rating and are expected to remain relatively stable going forward as a result of LEASECO's stable cash flow. GA's cash flow generation is expected to range between approximately US$1.9 million and US$4 million per year over the next six years, which compares favorably with its debt service, composed entirely of interest expense, of US$1.4 million. As of September 2011, GA's cash from operations has evolved in line with the base scenario considered by Fitch, registering close to USD 1 million and an interest payment of USD 790,000 dollars. Next interest payment is planned for December 17.
GA is a holding company that indirectly owns 15% of TEBSA, the largest thermoelectric generating company in Colombia. It also has a 26.3% indirect ownership stake in a leasing company, LEASECO, which in turn owns the majority of TEBSA's operating assets and maintenance agreement.
Additional information is available at www.fitchratings.com and www.fitchratings.com.co. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' Aug. 12, 2011;
--'Evaluating Corporate Governance' Dec. 16, 2010;
--'Parent and Subsidiary Rating Linkage' Aug. 12 2011;
--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers', May 12, 2011.
Applicable Criteria and Related Research:
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=628489
Parent and Subsidiary Rating Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210
Evaluating Corporate Governance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=581405
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