SAO PAULO & NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the following ratings of Industrias Metalurgicas Pescarmona S.A.I.C.y F. (IMPSA):
--Foreign currency Issuer Default Rating (IDR) at 'B+';
--Local currency IDR at 'B+';
--USD225 million senior unsecured notes due 2014 at 'B+/RR4';
--National scale IDR at 'AA(arg)';
--USD225 million senior unsecured notes due 2014 at 'AA(arg)';
--Classes 6,7,8,9,10,and 11 senior unsecured notes at 'AA(arg)'.
The Rating Outlook is Stable.
WPEI is a direct subsidiary of WPE, which in turn is wholly owned by IMPSA. WPEI notes are irrevocably and unconditionally guaranteed by IMPSA and WPE (IMPSA's Brazilian subsidiary) on a senior unsecured basis. WPEI's ratings reflect the creditworthiness of the guarantors. WPE is a fully owned subsidiary of IMPSA with strong operating, strategic and financial ties to its parent company. The 'B+' IDR assumes all WPEI's future debt issuances would be fully and unconditionally guaranteed by IMPSA, and will rank pari passu with IMPSA's senior unsecured debt.
Key Rating Drivers:
IMPSA's 'B+' ratings reflect the positive trend for the company's long-term business fundamentals which are the result of sustained global demand for hydro and wind power generating equipment. They also incorporate the company's growing business presence in Brazil and its sizeable backlog, which provides some certainty to the company's cash generation over the medium term. Balanced against these strengths are the company's high leverage, aggressive capital expenditure program and its backlog concentration on a few large projects in developing countries. A sudden downturn in key markets would negatively impact IMPSA's ability to develop new projects.
The company's operations have a significant concentration in Brazil. For the fiscal year ended Dec. 31, 2012, 45% of revenues came from Brazil. The growth of its business in Brazil has reduced IMPSA's exposure to more volatile markets such as Argentina and has increased its access to multiple funding sources. This increase in funding sources has reduced concerns about IMPSA's need to finance its working capital needs in Argentina should trading conditions in that market deteriorate. It has also enabled the company's foreign currency rating to exceed the 'B-' country ceiling of Argentina.
At March 31, 2013, IMPSA's backlog was around USD3.8 billion with 72% in wind manufacturing; 83% of manufacturing backlog came from Brazil. Given the long-term production cycle of IMPSA's developments (usually in the range of four years for hydro and 12-18 months for wind farms), this backlog level provides some certainty to the company's cash generation in the medium term. Existing purchase power agreements (PPAs) also contribute to the company's future revenue generating ability.
Backlog concentration for this industry is high, with five projects representing above 50% at March 31, 2013. The main project in the hydro equipment business unit is the Belo Monte hydro project in Brazil, whereas the main projects in the wind equipment unit are Arauco IV (Argentina) and Ceara III (Brazil).
The company's free cash flow (FCF) is anticipated to remain negative during 2013 and 2014 due to capital expenditures and growing working capital needs. Investments for fiscal year-end 2013 are estimated at approximately USD225 million. Much of the cash deficit will be funded with nonrecourse project financing to develop wind farm projects in Brazil.
Fitch expects IMPSA's total recourse debt-to-EBITDA ratio to remain around 4.0x, and decrease in accordance with the successful execution of the project backlog and the cash flow generation of the new energy projects in operation. As of March 31, 2013, IMPSA had USD982 million of total debt and total debt-to-EBITDA of 4.0x. Since March 2013, the company changed the accounting for its participation in the wind farms through Energimp, and is no longer consolidating their results. Non-recourse debt at wind farms is therefore no longer included at IMPSA's level (approximately USD418 million at March 31, 2013).
Liquidity is tight. IMPSA had USD33.7 million of cash and marketable securities at the end of March 2013, covering short-term debt by 14%. The company is expected to meet its upcoming debt obligations with a mix of cash from operations and the rollover of existing debt. IMPSA increased Brazilian short-term credit lines up to USD200 million and issued notes in the local capital market.
Rating Sensitivities:
The company's ratings could be downgraded or a Negative Outlook could be assigned if non-recourse financing increases above levels anticipated by Fitch. Additionally, any material performance problems that threaten future projects and cash flow, or a failure to comply with the terms for the operation of the wind farms (for which long-term PPAs have been signed with Eletrobras and the CCEE and are financed by BNDES) could also result in a Negative Outlook or downgrade.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'National Ratings Criteria' (Jan. 19, 2011).
--'Liquidity Considerations for Corporate Issues' dated June 12, 2007;
--'Rating Corporates Above the Country Ceiling' dated Aug. 8, 2005.
Applicable Criteria and Related Research:
Rating Corporates Above the Rating Ceiling
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=668909
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=798792
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.