SAO PAULO, Brazil--(BUSINESS WIRE)--Fitch Ratings has affirmed Tractebel Energia S.A.'s (Tractebel) ratings as follows:
--Local and Foreign Currency Issuer Default Ratings (IDRs) at 'BBB';
--Long Term National Scale Rating at 'AAA(bra)';
--Long Term National Scale Rating of the second debenture issuance due 2014 at 'AAA(bra)'.
The Outlook for the corporate ratings is Stable.
KEY RATING DRIVERS:
Tractebel's ratings reflect its solid consolidated financial profile, underpinned by its strong and predictable operational cash flow generation, low leverage, robust liquidity position and adequate debt maturity schedule. The ratings already incorporate that credit metrics should moderately deteriorate after the very likely transfer of the hydroelectric plant of Jirau (UHE Jirau) from its parent company GDF-Suez (Suez). Tractebel's consolidated leverage, measured by total debt-to-EBITDA, should not exceed 3.5 times (x), which is still consistent with the company's ratings. Fitch considers as positive the postponement of this movement to 2014, as Jirau should migrate to Tractebel in its operational phase, reducing execution risks.
Tractebel's ratings are further supported by its prominent market position as the largest private electric energy generation company in Brazil; its positive asset diversification; operational efficiency; and the existence of long-term power purchase agreements. To a lesser extent, the analysis considered the credit strength and sector expertise of its parent company, GDF-Suez, as a relevant global power company. The ratings also factor in Tractebel's ambitious expansion plans and the risks associated with the construction phase of the greenfield projects, which is somewhat mitigated by the controlling shareholder's strategy of developing relevant projects internally, only transferring them to Tractebel after the main risks are mitigated. The analysis incorporates a moderate regulatory risk and the hydrological risk, which recently has negatively impacted most of the energy companies in Brazil.
High and Predictable Operational Cash Generation:
Tractebel's credit profile benefits from its strong and predictable cash flow generation. In 2012 the company posted strong results, with net revenues of BRL4.9 billion and EBITDA of BRL3.1 billion on a consolidated basis, which compare favorably to BRL4.3 billion and BRL2.9 billion, respectively, in 2011. The main factors that contributed for this growth were higher average prices, as a result of the company's tariff adjustments and adequate contracts portfolio management and the start-up of UHE Estreito, in which Tractebel holds a 40.07% participation. EBITDA margin reduced to 63.3%, from 67.2% in the previous year, mainly due to higher thermal plants dispatch in that period and increased energy purchases for resale, activity that generates lower margins.
Sound Free Cash Flow, Despite High Dividends Payout:
Fitch considers as positive the flexibility that Tractebel has demonstrated in reducing its dividends distribution as a way to preserve cash and provide debt reduction when necessary. In 2012, the robust cash flow from operations (CFFO) grew 15% to BRL2.4 billion and was sufficient to cover BRL1.4 billion of dividends and BRL347 million of capital expenditures, resulting in a positive free cash flow (FCF) of BRL631 million for the period. The company has historically presented a high dividends payout, around 95% to 100% of net profit, with a temporary reduction to 58% and 55% in 2009 and 2010, respectively, aiming at strengthening its capital structure for the acquisition of the UHE Jirau project from its parent company. The dividends payout of 95% to 100% was resumed from 2011 onwards, after the postponement of this movement, estimated for 2014.
Maintenance of Solid Credit Metrics:
Fitch believes that Tractebel will be able to maintain credit metrics consistent with its ratings even after the acquisition of UHE Jirau. Positively, this acquisition should occur in the second half of 2014, after main project risks are mitigated and start-up has occurred. According to Fitch estimates, Tractebel's consolidated total debt-to-EBITDA may not exceed 3.5x and the company is expected to de-lever from 2015 onwards. Fitch believes that the parent company would provide some flexibility in transferring these assets in order to avoid liquidity pressure and to respect existing financial covenants for Tractebel's debt. UHE Jirau is a large hydroelectric plant, with expected installed capacity of 3,750 megawatts (MW) and estimated investments at BRL15.7 billion, mainly financed by BNDES, which up to now has been on GDF Suez's balance sheet.
As of year-end 2012, Tractebel's consolidated gross leverage declined to 1.2x from 1.4x in 2011, while its net debt-to-EBITDA ratio decreased to 0.9x from 1.1x during the same period. As of December 2012, the company's interest coverage, as measured by EBITDA to interest expenses was strong, at 12.6x. From 2008 to 2012 the company reported, on average, a net leverage of 1.2x and an interest coverage ratio of 10.1x.
Credit Profile Benefits from Long-Term Energy Sale Contracts:
Tractebel is the largest private energy generation company in Brazil, with a total installed capacity of 6,909 MW, to be further increased to 9,304 MW after the acquisition of 60% of the 3,750 MW of UHE Jirau and the conclusion of investments of 145 MW in wind farms. The company benefits from a successful energy commercialization strategy, the efficient monthly allocation of firm capacity and, to a lesser degree, the dilution of operational risks obtained through its diversified asset base. The recent operation of UHE Estreito, the potential acquisition of UHE Jirau, and the ongoing investments in wind farms reinforce this diversification.
Tractebel's energy balance going forward shows a secure contracted volume. Its contracted energy position is strong, above 88% of assured energy until 2015, being 98% in 2013, with adequate tariffs. Tractebel is also in a position to capture probable energy prices increases based on a tighter supply and demand balance. Its sales are diversified among distribution companies with long-term contracts and unregulated customers and commercialization companies with shorter-term contracts and flexible conditions.
Strong Liquidity Position and Financial Flexibility:
Tractebel's consolidated figures present a robust liquidity position. As of Dec. 31, 2012, cash and marketable securities amounted to BRL1.2 billion, covering by 2.1x its short-term debt of BRL559 million. The cash and equivalents + CFFO/short-term debt ratio of 6.3x was also strong. The company's debt maturity schedule is adequately distributed along the years and it is consistent with Tractebel's strong cash generating capacity.
Fitch notes that Tractebel has financial flexibility and broad access to bank debt and the capital markets, as one of the main companies engaged in the power sector in Brazil. It is important that the company finances its projects with adequate credit lines in terms of payment conditions and financial costs. Given the financial strength of its parent company, greater flexibility is also expected in the payment of dividends or for the acquisition of assets, if necessary.
Ambitious Investment Plan; Project Risks Partially Mitigated:
Tractebel has made sizeable investments in the energy sector, with 86% growth in its generation installed capacity since 1998. In general, investments in new projects have a negative impact on the company's consolidated credit ratios and pressure its cash flow, since they add debt and require resources, while operational cash generation occurs only after the operation starts up. Despite the inherent risk of the construction of generation plants, Fitch sees as positive Suez's strategy of first developing projects and transferring them to Tractebel only after mitigation of the main risks.
RATING SENSITIVITIES:
The ratings could be negatively affected if Tractebel expands its activities more rapidly than expected, incorporating projects that are not under its current business plan and financing them mainly with debt, to the extent that would lead to a material deterioration in its credit protection measures. An upgrade of Tractebel's ratings is unlikely until the UHE Jirau acquisition is concluded.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 08, 2012);
--'National Ratings Criteria' (Jan. 19, 2011).
Applicable Criteria and Related Research
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=789588
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