CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the foreign and local currency Issuer Default Ratings (IDRs) of AES Gener S.A. (Gener) at 'BBB' and its long-term national scale rating at 'A+ (cl)'. In addition Fitch has affirmed Gener's national Equity Rating at 'Primera Clase Nivel 2 (cl)'. These rating actions affect approximately USD537 million of outstanding Yankee bonds and USD361 million of domestic bonds. The Rating Outlook is Stable.
AES Gener's ratings are supported by the company's solid credit metrics, balanced contracted position and diverse portfolio of generating assets. The ratings also recognize that its major plants operate under constructive regulatory environments.
Credit risks include possible environmental and/or political issues, which could result in cost overruns or additional modifications in new projects. The credit risks also include the regulatory uncertainties in Argentina related to Termoandes S.A. and pressures from the controlling shareholder AES Corp. to increase dividends, although these risks appear manageable.
The Stable Outlook is driven by Gener's adequate credit metrics and liquidity profile.
KEY RATING DRIVERS
Good Financial Performance
Despite a slightly over contracted position relative to the company's efficient energy generation in Chile in 2012, Gener's credit quality measures were within guidelines for its rating category. For the last twelve months ended June 30, 2013, the company's consolidated EBITDA coverage and debt-to-EBITDA metrics were 4.7x and 3.4x, respectively. Excluding the non-recourse debt of Angamos power plant, Gener's debt-to-EBITDA was solid at 2.5x. Consolidated EBITDA was USD697 million in June 30, 2013, consistent with Fitch's expectations. In year-end 2013, EBITDA is expected to remain at similar levels.
Rising Capital Expenditures
Gener initiated construction in March of 2013 of its 532MW Cochrane coal project in SING, with estimated investment of approximately USD1.3 billion. This project will be financed through a project -finance type debt that will be non-recourse to Gener. The company is also analyzing the 531MW Alto Maipo hydroelectric project, though this project is advancing at a slower pace and expects to start construction before the end of 2013.
In the Cochrane project, Gener has incorporated Mitsubishi Corporation as a shareholder with a 60%/40% stake, respectively. Construction risk is likely to be mitigated by the selection of the same constructor that the Angamos project (Posco Engineering & Construction) which completed the project on budget and before schedule, and was also the constructor of the Nueva Ventanas and Ventanas IV plants. In addition, the project will be located beside the Angamos plant, which adds its experience in the port and coal stock management. Commercial risk is mitigated by solid counterparties and/or the existence of guarantees. In Alto Maipo, Gener incorporated Antofagasta Minerals S.A., a Chilean mining company, as 40% shareholder.
Consolidated Leverage to Increase, Non-Recourse Debt Stable
Fitch's base case projections include the expectation of an increase in Gener's consolidated leverage during the next couple of years, primarily due to the financing of the Cochrane project. For 2015, Fitch expects a consolidated net debt-to-EBITDA to increase to approximately 4.3x. However, Gener's recourse debt-to-EBTIDA is expected to be below 3x, which is consistent with Gener's current ratings. This adjusted analysis excludes non-recourse debt to Gener (Angamos and Cochrane project finance debt) and considers the dividend stream from Angamos instead of its EBITDA. Fitch's base case does not include the Alto Maipo project.
Adequate Liquidity
As of June 30, 2013, Gener's consolidated liquidity was USD367 million, enhanced by access to committed credit lines for USD270 million. USD 170 milion of the liquidity is restricted. Short-term debt was USD128 million. In 2014, Fitch expects Gener to refinance its USD380 million debt maturities.
High Dividend Payment
Gener has a track record of high dividend payments. Cash flow could be pressured in the upcoming expansion phase should this policy be maintained.
RATING SENSITIVITIES
A change in Gener's commercial policy that results in an imbalanced long-term contractual position, and/or a material and sustained deterioration of credit metrics (reflected in a non-recourse debt-to-EBITDA ratio greater than 3x and EBITDA-to-interest coverage below 3x) could result in a negative rating action. Fitch believes that a positive rating action is limited at this time due to the expected capacity expansion over the next few years.
Gener is the second largest electricity generation company in Chile, as it operates 21% of the country's total generating capacity (3,437MW, including its investments in Guacolda). The company has ownership interests in electric generation in Colombia and Argentina. Gener is indirectly owned by AES Corporation (71%). AES Corporation is one of the world's largest global power companies. With operations in five continents, the company is active in the generation and distribution of electricity. The company controls more than 40,000 MW of capacity.
Fitch has affirmed Gener's ratings as follows:
--US$400 million, 2014 notes at 'BBB',
--US$400 million, 2021 notes at 'BBB' ,
--UF$4.4 billion, 2028 notes Series N at'A+(cl)';
--UF$1.2 billion, 2015 notes Series O at 'A+(cl)';
--US$196 million, 2019 notes Series Q at 'A+(cl)',
--US$200 million Bond Program at 'A+(cl)',
--US$400 million Bond Program at 'A+(cl)'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012).
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=801243
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