Fitch Affirms Endesa Chile's IDRs at 'BBB+'/'AA(cl)'; Outlook Revised to Positive

miércoles 2 de marzo de 2016 15:10 GYT

(The following statement was released by the rating agency) NEW YORK, March 02 (Fitch) Fitch Ratings has affirmed the long-term foreign- and local-currency Issuer Default Ratings (IDRs) of Empresa Nacional de Electricidad S.A. (Endesa Chile) at 'BBB+' and its long-term National Scale rating at 'AA(cl)'. In addition, Fitch has affirmed Endesa Chile's short-term National Scale rating at 'N1+'. These rating actions affect the company's outstanding Yankee bonds and domestic bonds. The Rating Outlook was revised to Positive from Stable. KEY RATING DRIVERS Endesa Chile's ratings reflect a moderate-risk business profile underpinned by the company's conservative commercial strategy, operations in the constructive regulatory environment of Chile (Fitch IDR: 'A+'/Stable Outlook), and strong financial metrics. The revision to Positive from Stable was driven by Endesa Chile's solid liquidity profile and credit metrics, along with its exposure to the constructive regulatory and business environment of Chile for the electric generation business. The rated entity, Endesa Chile, now contains all the Chilean generation assets, as the international generation assets were officially spun off in February 2016 and moved under the Enersis Americas S.A. corporate umbrella. The rated Endesa Chile bonds and debt remain in the Endesa Chile entity. Credit risks associated with the company under its present corporate structure are manageable and include possible demands from shareholder Enel to increase dividends. The company's recently finalized corporate reorganization separated the business into Chile entities and international entities, so it no longer possesses the geographic diversification the pre-spin-off entity benefited from. Consistent with other energy generation companies in Chile, the company is also exposed to possible environmental and/or political issues that could result in cost overruns or modifications of projects under construction. Corporate Reorganization in Final Stages: The corporate restructuring announced in first half 2015 (1H15) by then parent company, Enersis S.A. (now named 'Enersis Americas S.A.', Fitch IDR: 'BBB'/Stable Outlook), at the behest of parent company Enel, is entering the final stages. On Feb. 1, 2016, Endesa Chile spun off its non-Chilean operations (i.e. Colombia, Peru, Argentina, and Brazil) into a new entity called Endesa Americas S.A. The Endesa Americas S.A. assets are now 60% owned by Enersis Americas S.A. The rated entity, Endesa Chile, contains all the group's Chilean generation assets and the bonds and corporate debt remains in this entity, which is now 60% owned by Enersis Chile S.A. Enersis Chile S.A. also owns 99.1% of the Chilean distribution assets now under the Chilectra Chile S.A. corporate name. Conservative Commercial Policy: Endesa Chile's conservative commercial policy is a key strength that should help reduce the company's exposure to hydrology risk, as hydroelectric capacity represented 54% of its generation matrix as of December 2015. The company's commercial policies limit the contracted volume of Endesa Chile's efficient generation capacity under different scenarios. Nevertheless, in a situation of severe drought, the company may need to generate with less efficient technologies, or even buy energy in the spot market to fulfill its contracts. Under the company's previous corporate structure, geographic diversification throughout South America provided a natural hedge against different regulations, economic downturns, and weather conditions. Now the company is 100% exposed to Chilean risks, though it has a strong competitive position there. 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 LNG Quintero S.A. (IDR 'BBB+'/Outlook Stable) liquefied natural gas (LNG) regasification facility. Access to lower-cost natural gas positions the company favorably against its competitors that use higher-cost fuels, and this advantage is now more pronounced given the recent expansion of LNG Quintero's regasification capacity to 15 million cubic meters (m3) from 10 million m3. Large Capex Projects Behind It: In recent years, Endesa Chile has had a moderate short- to medium-term expansion program. Its main project under construction is the Los Condores Hydroelectric Project, a 150MW run-of-the-river hydroelectric plant expected to be operational by the end of 2018/beginning of 2019, after a total investment of USD662 million. Endesa Chile continues to study several expansion projects in Chile, and in Fitch's view, the company's investment pipeline should not have a material negative impact on the company's cash flows in the short- to medium-term, and will prove accretive to cash flow in the long term. The company has estimated total capex will total USD1.2 billion during 2016-2019. Fitch expects that future capacity additions should not require significant additional indebtedness as cumulative free cash flow is forecast to remain positive during the next four years. Post-Spin-off, Leverage and Coverage Metrics Remain Solid: On a pro forma basis (adjusted for the spin-off of the non-Chile operations), Endesa Chile maintains a sound credit profile supported by stable EBITDA generation and a low leverage level. As of the full-year 2015, the company's interest coverage ratio (adjusted EBITDA-to-interest) stood at 8.2x, which is a slight improvement over the legacy-Endesa Chile (old structure) coverage ratio of 7.9x for the same period. Pro forma leverage measured as total debt-to-adjusted EBITDA was 1.7x, versus 1.6x pre-spin-off. For the 2015, the company's adjusted EBITDA was USD804 million on a pro forma basis. Results for the year reflect the Bocamina II plant stoppage for more than half the year. The re-start of Bocamina II did not have a significant effect given the second half of the year is more reliant on hydro generation. In the short- to medium-term, Fitch expects EBITDA to rise to the USD1 billion/year level, and for Endesa Chile to maintain interest coverage above 6x, and gross leverage at 2.0x or below in the near- to medium-term. RATING SENSITIVITIES Future developments that could, individually or collectively, lead to negative rating actions include: --A change in the company's commercial policy that results in an imbalanced long-term contractual position; --A material and sustained deterioration of the company's credit metrics reflected in a debt-to-EBITDA ratio greater than 3.0x and EBITDA-to-interest coverage below 4.0x; --Pressure from shareholders that could result in a significant increase in dividend payments. The Positive Outlook could be revised to Stable if the company's leverage increases to the 2.0x-3.0x level on a sustained basis. A positive rating action would be considered if the company is able to maintain sustained gross debt-to-EBITDA ratios below 2.0x. LIQUIDITY AND DEBT STRUCTURE Sound Liquidity and Manageable Debt Maturity Profile: Endesa Chile's credit profile is supported by ample consolidated liquidity, as the company's pro forma cash position totaled USD72 million as of December 2015, which compares favorably to short-term debt of USD39 million. Endesa Chile also has access to USD286 million of secured committed revolving credit lines. As of December 2015, total pro forma debt was USD1.3 billion. KEY ASSUMPTIONS --Capex for 2016-2019 of USD1.2 billion; --Adjusted EBITDA approaches USD1 billion/year starting with 2016; --Interest coverage above 6x and a gross leverage ratio at 2.0x or below between 2016-2019. Fitch has affirmed the following ratings: Empresa Nacional de Electricidad S.A. --Long-term foreign and local currency IDRs at 'BBB+'; --International senior unsecured bond ratings at 'BBB+'; --Long-term National Scale rating at 'AA(cl)' ; --Short-term National Scale rating at 'N1+'; --National senior unsecured bond ratings at 'AA(cl)'/'N1+'. The Rating Outlook was revised to Positive from Stable. Contact: Primary Analyst Xavier Olave Associate Director +1-212-612-7895 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Paula Garcia Director +562-2-4993316 Committee Chairperson Daniel R. 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