CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned a long term rating of 'BBB-' to Empresa de Energia de Bogota's (EEB) senior unsecured debt reopening of USD112 million. The company expects to use the proceeds to finance its capital expenditures program as well as for general corporate purposes.
Key Rating Drivers
EEB's ratings reflect the company's stable cash flow generation and solid business position as well as its moderate leverage and adequate liquidity position. The ratings also take into consideration EEB's reliance on dividends from its subsidiaries to service its debt and the company's aggressive growth strategy.
Stable Cash Flow Generation and Solid Business Position:
EEB's ratings reflect the company's diversified portfolio of assets, which have low business-risk profile and stable and predictable cash flow generation. EEB's low business-risk profile stems from its diversified portfolio of energy assets, which for the most part operate as regulated natural monopolies. EEB owns non-controlling majority participations in Colombia's second largest electric generation company, Emgesa (Fitch Issuer Default Rating [IDR] 'BBB'), as well as in the country's largest electric distribution company, Codensa (Fitch IDR 'AAA(col)'), which operates in the city of Bogota. The company also has a majority participation in Transportadora de Gas Internacional S.A. ESP (TGI; Fitch IDR 'BBB-'), Colombia's largest natural gas pipeline transportation company, among other assets in Colombia, Peru and Guatemala.
All of EEB's assets are in a strong competitive position, which augurs well for the company's credit profile. The electricity and gas distribution and transmission/transportation businesses are regulated natural monopolies with stable cash flow generation and low leverage. The electricity generation business in Colombia is competitive, given the country's significant low-cost hydroelectric generation and overcapacity. EEB's energy generation business is also competitively well-positioned, given its low-cost profile and capacity generation mix of 85% hydroelectric and 15% thermo electric.
Moderate Leverage and Liquidity Position:
EEB's leverage is moderate and its liquidity is manageable. As of June 30, 2013, the company reported approximately USD595 million of cash on hand, of which USD122 million was at EEB. The company's consolidated leverage, as measured by total consolidated debt to EBITDA plus dividends received, was 2.4x during the latest 12 months (LTM) ended June 30, 2013. During the LTM, EEB generated about USD873 million of consolidated EBITDA plus dividends. This compares with about USD2.1 billion of total consolidated debt.
Debt service is manageable, as most of the company's debt matures after 2021. Holding company debt as of June 30, 2013, totaled USD816 million, consisting mainly of USD610 million of notes due 2021 and a USD100 million loan from Corporacion Andina de Fomento (CAF). The vast majority of the holding company's cash flow is generated from dividends received from investments in Emgesa and Codensa. Annual dividends to the holding company average approximately USD280 million per year; TGI has not historically paid dividends to EEB, yet it transfers funds to EEB through intercompany loan interest payments.
Aggressive Growth Strategy:
Fitch considers EEB's growth strategy as somewhat aggressive. The company expects capital investments for 2013 and 2014 to total about USD1.4 billion. Not included in these capital investment expectations are the company's stated intention to participate in future bidding processes for green-field electricity transmission assets and a possible privatization of selected electricity generation companies in Colombia. Significantly large acquisitions hold the potential to result in negative rating actions if financed mostly with incremental debt. EEB's board of directors approved the company's participation in Isagen's privatization process, which has the potential to significantly increase EEB's leverage and deteriorate its credit quality.
Going forward, EEB expects to use debt at its subsidiaries' level, cash on hand and a portion of its internal cash flow generation to finance its expansion project, namely its investments in Peruvian gas transportation and Guatemalan electric transmission infrastructure. In the long term, Fitch expects the company's consolidated leverage level to range between 2.5x to 3.0x, absent large acquisitions, as its expansion projects start operations.
RATING SENSITIVITY
A negative rating action or Outlook would be considered if leverage reached 3.5x and stayed above that level for a period of time. Also, significantly large acquisitions hold the potential to result in negative rating actions if financed mostly with incremental debt and the ensuing consolidated capital structure deteriorates.
Although a positive rating action is not likely in the short term, one might be considered if the company sustains its capital structure in line with its current level and the credit quality of EEB's underlying subsidiaries continue improving.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 8, 2012;
--'National Scale Ratings Criteria', Oct. 30, 2013.
Applicable Criteria and Related Research:
National Scale Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139
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.