26.08.2015, 09:15
Fitch Affirms AES Gener's IDRs at 'BBB-'; National Scale at 'A+(cl); Outlook Stable
OREANDA-NEWS. Fitch Ratings has affirmed AES Gener S.A.'s (Gener) ratings as follows:
--Foreign and local currency Issuer Default Ratings (IDRs) at 'BBB-';
--International senior unsecured debt at 'BBB-';
--International junior subordinated debt at 'BB';
--National long-term ratings at 'A+(cl)';
--Domestic senior unsecured debt at 'A+(cl)';
--National equity rating at 'Nivel 2(cl)'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
Gener's ratings reflect the company's balanced contractual position and a diverse portfolio of generation assets. The ratings recognize that the company's major plants operate under constructive regulatory environments in Chile and Colombia. Credit risks include possible environmental and/or political issues, which could result in cost overruns or additional modifications in new and/or existing projects. The credit risks also include the regulatory uncertainties in Argentina related to Termoandes S.A., though these are mitigated given Argentina represented only 5% of consolidated EBITDA during 2014. In addition, the company could face pressure from its controlling shareholder, AES Corp. ('BB-'/Outlook Negative), to increase dividends above those forecast by Fitch. The company has sufficient liquidity to cushion itself through significant capex needs in the short- to medium-term.
Gener's equity rating reflects its shares' solid liquidity and 100% availability on the Santiago Stock Exchange during the August 2015 rolling 12-month period. In this period, the company had an average daily trading volume of USD1.191 million. Gener's free float continues to be 29.3%.
Improved Financial Results: In the first half of 2015 (1H15), AES Gener's EBITDA generation totaled USD310 million, which was 9% higher on a year-over-year (YoY) basis. In Chile the company was the market share leader in terms of generation volumes for 1H15, with a 28.5% share. The company achieved its highest-ever EBITDA generation results in its Chilean Central Interconnected System (SIC) operations during 1H15, helped by higher efficient generation and incremental leasing income from its Nueva Renca power plant. The improvement in overall financial results was also assisted by higher demand from unregulated customers in the Northern Interconnected System (SING).
In the last 12 months (LTM) ended June 2015, the company generated EBITDA of USD691 million, which is 3% higher than in 2014 and 11% higher versus 2013. EBITDA margins have expanded from 27.7% in 2013 to 31.2% in the LTM June 2015. Overall, financial results have come in slightly better than Fitch's forecast.
Robust Expansion Spending: The company continues on an aggressive expansion phase which brings with it execution risk (e.g. construction delays, accidents, cost-overruns). In addition, the expansion plan has resulted in additional pressure on the company's cash flow generation and credit metrics. Positively, the company has extensive history of finishing major projects on time and on budget. AES Gener's first phase of expansion took place between 2007-2013 in which time the company successfully expanded its generation capacity by 48% to reach 5,082MW of installed capacity at a total investment cost of USD3 billion.
The company is in the midst of what it has termed a second phase of expansion, which involves five major projects under construction that will increase installed capacity by 25%, with the total investment cost for this expansion phase expected to cost USD4 billion. The Guacolda V Project's cost is USD450 million (152MW coal-fired expansion), but it is currently 99% completed and on schedule to become operational in 4Q15. AES Gener's non-conventional renewable energy project, the Solar Andes Project (21MW), whose investment will total USD45 million, is also on schedule to be operational in 2H15. Tunjita, a 20MW run-of-the-river project in Colombia at a total cost of USD67 million, remains on schedule to be operational in 1H16.
The largest projects currently being constructed are Cochrane (USD1.35 billion) and Alto Maipo (USD2.05 billion). AES Gener initiated construction in March 2013 of its 532MW Cochrane coal project in the SING, with an estimated investment of approximately USD1.35 billion. In the Cochrane project, AES Gener has incorporated Mitsubishi Corporation as a shareholder with a 60%:40% equity stake, respectively. For Alto Maipo (531MW run-of-the-river project), AES Gener incorporated Chilean mining company Minera Los Pelambres S.A., a subsidiary of Antofagasta Minerals S.A., as a 40% shareholder. Non-recourse financing has been closed for both projects and the company used funds from junior subordinated notes (USD300 million) issued in 2013 and a subsequent USD150 million capital increase to fund the equity investments in both projects. Cochrane remains on schedule to become operational in 2016, while Alto Maipo has a commercial operation date (COD) date in 2018.
Negative FCF: Primarily due to cash outflows to fund the Cochrane and Alto Maipo projects, Fitch expects the company to generate negative free cash flow (FCF) in 2015-2017, coinciding with peak project capex for 2015-2016. The company should return to positive FCF generation in 2H17. Fitch estimates that Cochrane will become a significant positive cash flow contributor in 2017 while Alto Maipo should do so in 2018. The company's financial strategy revolves around maintaining a balance between continuity of funding and financial flexibility through internally generated cash flows, bank loans, bonds, short-term investments, committed credit lines and uncommitted credit lines.
Pressured Credit Metrics: Given AES Gener is in the midst of an aggressive expansion plan, Fitch expects a weakening of the company's credit quality measures in the short- to medium-term. For the LTM ended June 2015, the company's consolidated debt-to-EBITDA and EBITDA coverage metrics were 4.6x and 5.1x , respectively. These ratios are weaker versus leverage levels of 4.3x and 3.6x in 2013 and 2012, though coverage ratios positively improved versus 3.5x in 2013.
Excluding the non-recourse debt of the Alto Maipo and Cochrane power plants, AES Gener's debt-to-EBITDA for the LTM June 2015 was 3.4x. Fitch expects the company's consolidated leverage levels to remain in the 4.5x-5x range during 2015-2016, which is on the weak side for the rating category. Leverage levels should slowly decline to the 4x level starting in 2H17 as Cochrane comes on-line and begins generating meaningful cash flows in 2016-2017.
High Dividend Payment: AES Gener has a track record of high dividend payments, and Fitch expects the company to continue to pay out 100% of net income going forward. Cash flow could be further pressured in the upcoming expansion phase should this dividend policy be increased to a payout rate above 100% of net income during peak capex periods.
RATING SENSITIVITIES
A change in AES Gener's commercial policy that results in an imbalanced long-term contractual position would be viewed negatively by Fitch. In addition, a material and sustained deterioration of credit metrics reflected in total consolidated debt-to-EBITDA ratios above 4.5x-5x and total non-recourse debt-to-EBITDA ratios above 3.0x-3.5x on a sustained basis 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.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Fitch believes AES Gener has adequate liquidity to support its financial needs during the peak capex period, with the recent refinancing of its Angamos and Nueva Ventanas project finance debt a positive improvement by helping to reduce interest expense. In addition, the refinancing of its non-consolidated subsidiary, Empresa Electrica Guacolda, should help the company begin to generate meaningful dividend income starting in 2015.
The company's liquidity is supported by reported cash on hand of USD190 million as of June 30, 2015, which compares favorably with short-term maturities totalling USD95 million for all of 2015-2016. The company's liquidity is further buoyed by access to undrawn committed credit lines totalling USD235 million. Positively, the company's debt outstanding has no major maturities coming due during the 2015-2020, which cushions the company for the large build-out taking place.
KEY ASSUMPTIONS
--Peak capex for latest expansion program in 2015-2016;
--Cochrane becomes a positive contributor in 2016, with Alto Maipo following suit in 2018;
--100% of net income dividend payout rate;
--Peak leverage at the 4.5x-5x level during 2015-2016, with leverage declining slowly starting in 2H17 and reaching below 4x level in 2019.
Fitch is affirming the following ratings for AES Gener S.A.:
--Foreign and local currency IDRs at 'BBB-';
--International senior unsecured bond ratings at 'BBB-';
--International junior subordinated bond ratings at 'BB';
--Long-term national scale rating at 'A+(cl)' ;
--National senior unsecured bond ratings at 'A+(cl)';
--National equity rating at 'Primera Clase Nivel 2(cl)'.
The Rating Outlook is Stable.
--Foreign and local currency Issuer Default Ratings (IDRs) at 'BBB-';
--International senior unsecured debt at 'BBB-';
--International junior subordinated debt at 'BB';
--National long-term ratings at 'A+(cl)';
--Domestic senior unsecured debt at 'A+(cl)';
--National equity rating at 'Nivel 2(cl)'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
Gener's ratings reflect the company's balanced contractual position and a diverse portfolio of generation assets. The ratings recognize that the company's major plants operate under constructive regulatory environments in Chile and Colombia. Credit risks include possible environmental and/or political issues, which could result in cost overruns or additional modifications in new and/or existing projects. The credit risks also include the regulatory uncertainties in Argentina related to Termoandes S.A., though these are mitigated given Argentina represented only 5% of consolidated EBITDA during 2014. In addition, the company could face pressure from its controlling shareholder, AES Corp. ('BB-'/Outlook Negative), to increase dividends above those forecast by Fitch. The company has sufficient liquidity to cushion itself through significant capex needs in the short- to medium-term.
Gener's equity rating reflects its shares' solid liquidity and 100% availability on the Santiago Stock Exchange during the August 2015 rolling 12-month period. In this period, the company had an average daily trading volume of USD1.191 million. Gener's free float continues to be 29.3%.
Improved Financial Results: In the first half of 2015 (1H15), AES Gener's EBITDA generation totaled USD310 million, which was 9% higher on a year-over-year (YoY) basis. In Chile the company was the market share leader in terms of generation volumes for 1H15, with a 28.5% share. The company achieved its highest-ever EBITDA generation results in its Chilean Central Interconnected System (SIC) operations during 1H15, helped by higher efficient generation and incremental leasing income from its Nueva Renca power plant. The improvement in overall financial results was also assisted by higher demand from unregulated customers in the Northern Interconnected System (SING).
In the last 12 months (LTM) ended June 2015, the company generated EBITDA of USD691 million, which is 3% higher than in 2014 and 11% higher versus 2013. EBITDA margins have expanded from 27.7% in 2013 to 31.2% in the LTM June 2015. Overall, financial results have come in slightly better than Fitch's forecast.
Robust Expansion Spending: The company continues on an aggressive expansion phase which brings with it execution risk (e.g. construction delays, accidents, cost-overruns). In addition, the expansion plan has resulted in additional pressure on the company's cash flow generation and credit metrics. Positively, the company has extensive history of finishing major projects on time and on budget. AES Gener's first phase of expansion took place between 2007-2013 in which time the company successfully expanded its generation capacity by 48% to reach 5,082MW of installed capacity at a total investment cost of USD3 billion.
The company is in the midst of what it has termed a second phase of expansion, which involves five major projects under construction that will increase installed capacity by 25%, with the total investment cost for this expansion phase expected to cost USD4 billion. The Guacolda V Project's cost is USD450 million (152MW coal-fired expansion), but it is currently 99% completed and on schedule to become operational in 4Q15. AES Gener's non-conventional renewable energy project, the Solar Andes Project (21MW), whose investment will total USD45 million, is also on schedule to be operational in 2H15. Tunjita, a 20MW run-of-the-river project in Colombia at a total cost of USD67 million, remains on schedule to be operational in 1H16.
The largest projects currently being constructed are Cochrane (USD1.35 billion) and Alto Maipo (USD2.05 billion). AES Gener initiated construction in March 2013 of its 532MW Cochrane coal project in the SING, with an estimated investment of approximately USD1.35 billion. In the Cochrane project, AES Gener has incorporated Mitsubishi Corporation as a shareholder with a 60%:40% equity stake, respectively. For Alto Maipo (531MW run-of-the-river project), AES Gener incorporated Chilean mining company Minera Los Pelambres S.A., a subsidiary of Antofagasta Minerals S.A., as a 40% shareholder. Non-recourse financing has been closed for both projects and the company used funds from junior subordinated notes (USD300 million) issued in 2013 and a subsequent USD150 million capital increase to fund the equity investments in both projects. Cochrane remains on schedule to become operational in 2016, while Alto Maipo has a commercial operation date (COD) date in 2018.
Negative FCF: Primarily due to cash outflows to fund the Cochrane and Alto Maipo projects, Fitch expects the company to generate negative free cash flow (FCF) in 2015-2017, coinciding with peak project capex for 2015-2016. The company should return to positive FCF generation in 2H17. Fitch estimates that Cochrane will become a significant positive cash flow contributor in 2017 while Alto Maipo should do so in 2018. The company's financial strategy revolves around maintaining a balance between continuity of funding and financial flexibility through internally generated cash flows, bank loans, bonds, short-term investments, committed credit lines and uncommitted credit lines.
Pressured Credit Metrics: Given AES Gener is in the midst of an aggressive expansion plan, Fitch expects a weakening of the company's credit quality measures in the short- to medium-term. For the LTM ended June 2015, the company's consolidated debt-to-EBITDA and EBITDA coverage metrics were 4.6x and 5.1x , respectively. These ratios are weaker versus leverage levels of 4.3x and 3.6x in 2013 and 2012, though coverage ratios positively improved versus 3.5x in 2013.
Excluding the non-recourse debt of the Alto Maipo and Cochrane power plants, AES Gener's debt-to-EBITDA for the LTM June 2015 was 3.4x. Fitch expects the company's consolidated leverage levels to remain in the 4.5x-5x range during 2015-2016, which is on the weak side for the rating category. Leverage levels should slowly decline to the 4x level starting in 2H17 as Cochrane comes on-line and begins generating meaningful cash flows in 2016-2017.
High Dividend Payment: AES Gener has a track record of high dividend payments, and Fitch expects the company to continue to pay out 100% of net income going forward. Cash flow could be further pressured in the upcoming expansion phase should this dividend policy be increased to a payout rate above 100% of net income during peak capex periods.
RATING SENSITIVITIES
A change in AES Gener's commercial policy that results in an imbalanced long-term contractual position would be viewed negatively by Fitch. In addition, a material and sustained deterioration of credit metrics reflected in total consolidated debt-to-EBITDA ratios above 4.5x-5x and total non-recourse debt-to-EBITDA ratios above 3.0x-3.5x on a sustained basis 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.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Fitch believes AES Gener has adequate liquidity to support its financial needs during the peak capex period, with the recent refinancing of its Angamos and Nueva Ventanas project finance debt a positive improvement by helping to reduce interest expense. In addition, the refinancing of its non-consolidated subsidiary, Empresa Electrica Guacolda, should help the company begin to generate meaningful dividend income starting in 2015.
The company's liquidity is supported by reported cash on hand of USD190 million as of June 30, 2015, which compares favorably with short-term maturities totalling USD95 million for all of 2015-2016. The company's liquidity is further buoyed by access to undrawn committed credit lines totalling USD235 million. Positively, the company's debt outstanding has no major maturities coming due during the 2015-2020, which cushions the company for the large build-out taking place.
KEY ASSUMPTIONS
--Peak capex for latest expansion program in 2015-2016;
--Cochrane becomes a positive contributor in 2016, with Alto Maipo following suit in 2018;
--100% of net income dividend payout rate;
--Peak leverage at the 4.5x-5x level during 2015-2016, with leverage declining slowly starting in 2H17 and reaching below 4x level in 2019.
Fitch is affirming the following ratings for AES Gener S.A.:
--Foreign and local currency IDRs at 'BBB-';
--International senior unsecured bond ratings at 'BBB-';
--International junior subordinated bond ratings at 'BB';
--Long-term national scale rating at 'A+(cl)' ;
--National senior unsecured bond ratings at 'A+(cl)';
--National equity rating at 'Primera Clase Nivel 2(cl)'.
The Rating Outlook is Stable.
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