Fitch Expects to Rate Endesa's Proposed Debt Issuance of Up to US$400MM 'BBB+'

jueves 10 de abril de 2014 15:21 GYT
 

(The following statement was released by the rating agency) NEW YORK, April 10 (Fitch) Fitch Ratings expects to assign a rating of 'BBB+' to Empresa Nacional de Electricidad S.A.'s (Endesa Chile) proposed senior unsecured debt issuance of up to US$400 million with a 10-year bullet maturity. The proceeds will be used for general corporate purposes, including repayment of short-term and intercompany indebtedness. Key Rating Drivers Endesa Chile's ratings reflect a moderate-risk business profile underpinned by the company's conservative commercial strategy and geographic diversification, operations in constructive regulatory environments, and strong financial metrics. Endesa Chile's ratings are aligned with those of parent company Enersis S.A. (Fitch IDR of 'BBB+', Outlook Stable) in light of their strong legal, operational and strategic ties. The Stable Outlook is driven by Endesa Chile's adequate liquidity profile and credit metrics. Credit risks associated with the company are manageable and include possible pressure from the shareholder Enel S.p.a. (IDR of 'BBB+', Rating Watch Negative) to increase dividends. The company is also exposed to possible environmental and/or political issues that could result in cost overruns or modifications of projects under construction. Endesa could also face regulatory uncertainties in Argentina, which only represents 6% of EBITDA. Conservative Commercial Policy: Endesa Chile's conservative commercial policy is a key strength to help reduce the company's exposure to hydrology risk, as hydroelectric capacity represents 59% of its generation matrix as of December 2013. The company's commercial policies limit the contracted volume to Endesa Chile's efficient generation capacity under different scenarios. Nevertheless, in a situation of severe drought, the company may need to buy energy in the spot market to fulfill its contracts. Geographic diversification throughout South America provides a natural hedge against different regulations and weather conditions. The company has a strong competitive position in Chile which represents 37% of 2013 consolidated EBITDA. In Chile, the company's exposure to commodity fuel price risk is mitigated by contracts that include price indexation mechanisms that recognize a significant portion of fuel price variations. Also, the company has access to competitive natural gas from its 20% ownership in the Quintero liquefied natural gas (LNG) regasification facility. Access to lower cost natural gas favorably positions the company against its competitors that use higher cost fuels. The company's power plants San Isidro I and II were able to operate continuously with such gas during the 2010-2013 unusually prolonged drought in Chile. Bocamina II Stoppage Poses Manageable Risk: The Bocamina II coal plant began its commercial operations in Chile in October 2012, adding 350 megawatts (MWs) of thermal power generation after a delay of over one year in its start-up. In December 2013, a Chilean appeals court ordered the suspension of operations at this plant due to environmental issues. So far, Endesa's appeals to re-start operations have been unsuccessful, and the plant has remained idle since December. In addition, the plant's sister facility, Bocamina I, was also idled for about 10 days in late-January 2014. Endesa estimated total incremental cost from this stoppage at US$45 million for the December 2013-February 2014 period. Going forward, the cost of having to pay spot prices to fulfill energy contracts will average US$0.8 million-US$1.2 million in incremental expenditures per day. In a worst-case scenario, which would assume the plant remains out of operation for the entire year, this would imply an approximately US$300 million hit to EBITDA, which is the equivalent of 15% of EBITDA reported during 2013. Even in this scenario, Fitch believes that the company will be able to maintain sound credit metrics with total debt to EBITDA around 2.2x, assuming EBITDA generation of US$1.6 billion for the year and the firm's continued deleveraging. Moderate Medium-Term Expansion Program: Endesa Chile's main project under construction is Quimbo, a 400MW hydroelectric plant in Colombia. With a total investment of USD1.1 billion, Quimbo is expected to begin operations in the first quarter of 2015. Endesa Chile continues to study several expansion projects in Chile, Colombia and Peru including the Taltal conversion to combined cycle (120MW), Salaco repowering project (145MW), Curibamba (188MW), Punta Alcalde (740MW), and Neltume (490MW). It also continues the studies to construct the Hydroaysen hydro power plant which would add 2,750MW of capacity in Chile. In late March/early April 2014, Endesa's Board of Directors approved two notable investments. On March 31, the board approved the acquisition of a 50% stake in GasAtacama from Southern Cross Latin American for US$309 million. Endesa Chile currently owns 48.1% of this asset with Enersis owning the remaining 1.9%. Through this acquisition, which should close by the end of April 2014, Endesa will gain full control of the asset. On April 1, Endesa's board approved a US$662 million investment to construct a 150MW hydroelectric plant in the VII region called Los Condores. This plant, which had previously been under study, is expected to be operational by the end of 2018. In Fitch's view, neither investment materially impacts cash flow projections. Fitch expects that future capacity additions should not require additional indebtedness as free cash flow is forecast to remain positive. Annual capex (including maintenance capex) is expected to decrease to a level of USD400 million to USD550 million per annum versus the nearly USD600 million spent in 2013. Credit Metrics Expected to Remain Strong: Endesa maintains a sound credit profile supported by stable EBITDA generation and a moderating leverage level. As of Dec. 31, 2013, interest coverage ratio (EBITDA-to-interest) stood at 5.8x (versus 4.8x in 2012), while leverage measured as total debt-to-EBITDA was 1.9x (versus 2.3x) and net debt-to-EBITDA was 1.6x (versus 2x). For the full-year 2013, the company's EBITDA was USD2 billion (up 13% year-over-year). Normalizing for the Bocamina II stoppage, Fitch expects EBITDA to remain at stable levels in 2014 and slowly increase to the mid-USD2.5 billion level over time as new projects, such as Quimbo, come on-line. Even taking the Bocamina II stoppage into consideration, Fitch expects Endesa to maintain interest coverage near 5x and a net leverage ratio near 2.0x, between 2014-2016. Sound Liquidity and Manageable Debt Maturity Profile: Endesa Chile's credit profile is supported by ample consolidated liquidity as the company had USD616 million of cash as of December 2013 and access to USD493 million of secured committed revolving credit lines; that compares positively to short-term debt of USD673 million. As of year-end 2013, total debt was USD3.6 billion, and, going forward, debt maturities are manageable with USD400 million due in 2015 and USD94 million due in 2016. Fitch expects the company to refinance a portion of its short-term debt maturities via the proposed bond offering. Rating Sensitivities Endesa Chile's ratings could be negatively affected by a combination of the following: a change in the company's commercial policy that results in an imbalanced long-term contractual position; and/or a material and sustained deterioration of the company's credit metrics reflected in a debt-to-EBITDA ratio greater than 3x and EBITDA-to-interest coverage below 4x; and/ or pressure from shareholders that could result in a significant increase in dividend payments. A positive rating action would be considered after material improvements in credit metrics that could be sustained over the long term and a substantial reduction in debt levels. Contact: Primary Analyst Xavier Olave Associate Director +1-212-612-7895 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 Secondary Analyst Paula Garcia Director +562-2-4993316 Committee Chairperson Rina Jarufe Senior Director +562-2-4993310 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 5, 2013). Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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. 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