SAO PAULO--(BUSINESS WIRE)--Fitch Ratings has affirmed Energisa S.A.'s (Energisa) and its subsidiaries' ratings. The Rating Outlook for all corporate ratings is Stable. A full list of ratings is provided at the end of this press release.
Energisa's and its subsidiaries' ratings reflect the company's adequate consolidated financial profile, characterized by moderate leverage, robust liquidity, and lengthened debt maturity profile. The group also benefits from its operation in the energy distribution segment, as regulated natural monopolies, and has benefited from a diversified and growing client base. Energisa group's credit profile is bolstered by its diversified power distribution concessions, which dilutes business risk. Further improvements are expected once the investments in power generation mature and become more representative, especially from 2013 onward, reducing the group's cash flow generation volatility related to periodical tariff review processes. The ratings also incorporate the group's exposure to foreign exchange movements, hydrological risk, and a low-to-moderate regulatory risk.
The one-notch difference between Energisa's ratings and those of its subsidiaries is based on the relevance and structural subordination of the holding company's debt compared to that of the operating companies. Considering the senior perpetual notes issuance, the holding company debt represented approximately 35% of consolidated debt as of Sept. 30, 2011.
Sound Operational Profile:
In general, Energisa's consolidated cash flow has benefited by a higher than expected increase in energy consumption in the group's concession areas and, to a lesser extent, by the gradual improvement of its operational indicators. The group has consistently reduced its energy losses, both on a consolidated basis and individually. Currently, all of Energisa's distribution companies report losses below the maximum percentages established by the regulatory agency (Aneel) and contemplated in the energy tariffs, which is an important factor regarding their operating cash flow.
For the last 12 months (LTM) ended Sept. 30, 2011, consolidated net revenues, EBITDA and funds from operations (FFO) reached BRL2.3 billion, BRL521 million and BRL584 million, respectively, compared to BRL2.2 billion, BRL508 million and BRL622 million reported in 2010. Fitch believes Energisa should continue to benefit from the increased energy consumption in its concession areas during 2012 and 2013, although at lower growth rates compared to 2010. This aspect, combined with the start-up of some generation projects, could partly offset the negative effects of the next tariff review process. The third cycle tariff review for Energisa's subsidiaries is scheduled to start in 2012, with tariff reviews for the most significant subsidiaries expected to come in 2013. EBITDA margin of 22.3% for the LTM ended Sept. 30, 2011, should also be pressured by the tariff review.
Robust Liquidity and Adequate Debt Profile:
Energisa presents comfortable liquidity levels on a consolidated basis. As of Sept. 30, 2011, the group reported BRL747 million of cash and marketable securities, which covered its short-term debt by 2.8 times (x). For the same period, cash + FFO-to-short-term debt ratio was solid at 4.9x, evidencing its adequate debt repayment schedule. Debt is concentrated in the long term, with maturities well distributed over time, with some concentration in 2013 and 2014 not being a major concern and adequate average maturity profile of 4.6 years as of Sept. 30, 2011.
Fitch will monitor the developments regarding Energisa's appeal of Comissao de Valores Mobiliarios's (CVM) recent resolution, which may require the company to reclassify its financial statements for the last three quarters in order to report hybrid perpetual notes as debt instead of equity. Based on its methodology, Fitch had not granted any equity benefit for this issuance, therefore no impact on the group's financial indicators is foreseen, yet this could trigger financial covenants related to a BRL150 million of debentures at the holding company. Fitch believes Energisa's liquidity position is strong enough to repay the BRL150 million debt, should the company not be able to obtain a covenant waiver from its creditors. Therefore, in Fitch's view the risk of anticipated maturity of other debts, which in the worst case could reach BRL1.1 billion, is very unlikely to happen.
Negative Free Cash Flow to Improve After Project Start-ups:
Energisa's free cash flow (FCF) is expected to stay negative in the next two years as a result of high capital expenditures and dividends distribution. Fitch believes that the generation segment, after commencing operations, will improve Energisa's business profile and provide more stability to its operational cash flow. Cash flow from operations (CFFO) was BRL545 million for the LTM ended Sept. 30, 2011. Cash generation was used to fund capital expenditures, which were higher compared to historical levels (approximately BRL479 million within this period, including the power generation projects) and the dividend distribution (BRL95 million), resulting in a negative FCF of BRL30 million.
Leverage to Be Pressured by High Capex and Third Tariff Review Cycle:
Energisa's consolidated net leverage is considered strong for the rating. Net adjusted debt-to-EBITDA ratio was 3.0x for the period of LTM ended Sept. 30, 2011, slightly higher than the 2.7x recorded in 2010. Fitch expects that net leverage will be pressured by strong investments in energy generation. Also, the recently approved rules for the third tariff review cycle for the power distributors should negatively impact the group's operational cash flow. As the group continues to obtain efficiency gains and to reduce losses and starts reaping the benefits of the generation projects, leverage should present a decreasing trend.
Key Rating Drivers:
The ratings could see negatively pressure from higher than anticipated leverage ratios. Additional new investments beyond those envisioned and that may demand significant amounts of capital could pressure credit quality. A rating upgrade could be driven by greater CFFO, more conservative leverage and credit protection measures, and increased contribution of cash flow from the energy generation activities.
Fitch has affirmed the following ratings:
Energisa
--Foreign currency Issuer Default Rating (IDR) at 'BB-';
--Local Currency IDR at 'BB-';
--Long-term national scale rating at 'A(bra)';
--Long-term national rating of the third debentures issuance, in the amount of BRL150 million, due in 2014, at 'A(bra)';
--Long-term international rating of the senior perpetual notes, in the amount of USD200 million, at 'BB-'.
Energisa Paraiba
--Foreign currency IDR at 'BB'';
--Local Currency IDR at 'BB' ';
--Long-term national scale rating at 'A+(bra)';
--Long-term international rating of the notes units, in the amount of USD83 million, due in 2013, at 'BB'';
--Long-term national rating of the first debentures issuance, in the amount of BRL80 million, due in 2014, at 'A+(bra)'.
Energisa Sergipe
--Foreign currency IDR at 'BB';
--Local currency IDR at 'BB' ;
--Long-term national scale rating at 'A+(bra)';
--Long-term international rating of the notes units, in the amount of USD167 million, due in 2013, at 'BB';
--Long-term national rating of the first debentures issuance, in the amount of USD42 million, due in 2015, at 'A(bra)';
--Long-term national rating of the second debentures issuance, in the amount of BRL60 million, due in 2014, at 'A+(bra)'.
Energisa Minas Gerais
--Foreign currency IDR at 'BB';
--Local currency IDR 'BB';
--Long-term national scale rating at 'A+(bra)' ;
--Long-term national rating of the seventh debentures issuance, in the amount of BRL60 million, due in 2014, at 'A+(bra)'.
Additional information is available at 'www.fitchratings.com`. 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 Metholodogy' (Aug. 12, 2011);
--'National Ratings Criteria' (Jan. 19, 2011).
Applicable Criteria and Related Research:
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
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