Fitch Affirms Tractebel's IDRs at 'BBB'; Outlook Stable
SAO PAULO, Brazil -- April 25, 2013
Fitch Ratings has affirmed Tractebel Energia S.A.'s (Tractebel) ratings as
--Local and Foreign Currency Issuer Default Ratings (IDRs) at 'BBB';
--Long Term National Scale Rating at 'AAA(bra)';
--Long Term National Scale Rating of the second debenture issuance due 2014 at
The Outlook for the corporate ratings is Stable.
KEY RATING DRIVERS:
Tractebel's ratings reflect its solid consolidated financial profile,
underpinned by its strong and predictable operational cash flow generation,
low leverage, robust liquidity position and adequate debt maturity schedule.
The ratings already incorporate that credit metrics should moderately
deteriorate after the very likely transfer of the hydroelectric plant of Jirau
(UHE Jirau) from its parent company GDF-Suez (Suez). Tractebel's consolidated
leverage, measured by total debt-to-EBITDA, should not exceed 3.5 times (x),
which is still consistent with the company's ratings. Fitch considers as
positive the postponement of this movement to 2014, as Jirau should migrate to
Tractebel in its operational phase, reducing execution risks.
Tractebel's ratings are further supported by its prominent market position as
the largest private electric energy generation company in Brazil; its positive
asset diversification; operational efficiency; and the existence of long-term
power purchase agreements. To a lesser extent, the analysis considered the
credit strength and sector expertise of its parent company, GDF-Suez, as a
relevant global power company. The ratings also factor in Tractebel's
ambitious expansion plans and the risks associated with the construction phase
of the greenfield projects, which is somewhat mitigated by the controlling
shareholder's strategy of developing relevant projects internally, only
transferring them to Tractebel after the main risks are mitigated. The
analysis incorporates a moderate regulatory risk and the hydrological risk,
which recently has negatively impacted most of the energy companies in Brazil.
High and Predictable Operational Cash Generation:
Tractebel's credit profile benefits from its strong and predictable cash flow
generation. In 2012 the company posted strong results, with net revenues of
BRL4.9 billion and EBITDA of BRL3.1 billion on a consolidated basis, which
compare favorably to BRL4.3 billion and BRL2.9 billion, respectively, in 2011.
The main factors that contributed for this growth were higher average prices,
as a result of the company's tariff adjustments and adequate contracts
portfolio management and the start-up of UHE Estreito, in which Tractebel
holds a 40.07% participation. EBITDA margin reduced to 63.3%, from 67.2% in
the previous year, mainly due to higher thermal plants dispatch in that period
and increased energy purchases for resale, activity that generates lower
Sound Free Cash Flow, Despite High Dividends Payout:
Fitch considers as positive the flexibility that Tractebel has demonstrated in
reducing its dividends distribution as a way to preserve cash and provide debt
reduction when necessary. In 2012, the robust cash flow from operations (CFFO)
grew 15% to BRL2.4 billion and was sufficient to cover BRL1.4 billion of
dividends and BRL347 million of capital expenditures, resulting in a positive
free cash flow (FCF) of BRL631 million for the period. The company has
historically presented a high dividends payout, around 95% to 100% of net
profit, with a temporary reduction to 58% and 55% in 2009 and 2010,
respectively, aiming at strengthening its capital structure for the
acquisition of the UHE Jirau project from its parent company. The dividends
payout of 95% to 100% was resumed from 2011 onwards, after the postponement of
this movement, estimated for 2014.
Maintenance of Solid Credit Metrics:
Fitch believes that Tractebel will be able to maintain credit metrics
consistent with its ratings even after the acquisition of UHE Jirau.
Positively, this acquisition should occur in the second half of 2014, after
main project risks are mitigated and start-up has occurred. According to Fitch
estimates, Tractebel's consolidated total debt-to-EBITDA may not exceed 3.5x
and the company is expected to de-lever from 2015 onwards. Fitch believes that
the parent company would provide some flexibility in transferring these assets
in order to avoid liquidity pressure and to respect existing financial
covenants for Tractebel's debt. UHE Jirau is a large hydroelectric plant, with
expected installed capacity of 3,750 megawatts (MW) and estimated investments
at BRL15.7 billion, mainly financed by BNDES, which up to now has been on GDF
Suez's balance sheet.
As of year-end 2012, Tractebel's consolidated gross leverage declined to 1.2x
from 1.4x in 2011, while its net debt-to-EBITDA ratio decreased to 0.9x from
1.1x during the same period. As of December 2012, the company's interest
coverage, as measured by EBITDA to interest expenses was strong, at 12.6x.
From 2008 to 2012 the company reported, on average, a net leverage of 1.2x and
an interest coverage ratio of 10.1x.
Credit Profile Benefits from Long-Term Energy Sale Contracts:
Tractebel is the largest private energy generation company in Brazil, with a
total installed capacity of 6,909 MW, to be further increased to 9,304 MW
after the acquisition of 60% of the 3,750 MW of UHE Jirau and the conclusion
of investments of 145 MW in wind farms. The company benefits from a successful
energy commercialization strategy, the efficient monthly allocation of firm
capacity and, to a lesser degree, the dilution of operational risks obtained
through its diversified asset base. The recent operation of UHE Estreito, the
potential acquisition of UHE Jirau, and the ongoing investments in wind farms
reinforce this diversification.
Tractebel's energy balance going forward shows a secure contracted volume. Its
contracted energy position is strong, above 88% of assured energy until 2015,
being 98% in 2013, with adequate tariffs. Tractebel is also in a position to
capture probable energy prices increases based on a tighter supply and demand
balance. Its sales are diversified among distribution companies with long-term
contracts and unregulated customers and commercialization companies with
shorter-term contracts and flexible conditions.
Strong Liquidity Position and Financial Flexibility:
Tractebel's consolidated figures present a robust liquidity position. As of
Dec. 31, 2012, cash and marketable securities amounted to BRL1.2 billion,
covering by 2.1x its short-term debt of BRL559 million. The cash and
equivalents + CFFO/short-term debt ratio of 6.3x was also strong. The
company's debt maturity schedule is adequately distributed along the years and
it is consistent with Tractebel's strong cash generating capacity.
Fitch notes that Tractebel has financial flexibility and broad access to bank
debt and the capital markets, as one of the main companies engaged in the
power sector in Brazil. It is important that the company finances its projects
with adequate credit lines in terms of payment conditions and financial costs.
Given the financial strength of its parent company, greater flexibility is
also expected in the payment of dividends or for the acquisition of assets, if
Ambitious Investment Plan; Project Risks Partially Mitigated:
Tractebel has made sizeable investments in the energy sector, with 86% growth
in its generation installed capacity since 1998. In general, investments in
new projects have a negative impact on the company's consolidated credit
ratios and pressure its cash flow, since they add debt and require resources,
while operational cash generation occurs only after the operation starts up.
Despite the inherent risk of the construction of generation plants, Fitch sees
as positive Suez's strategy of first developing projects and transferring them
to Tractebel only after mitigation of the main risks.
The ratings could be negatively affected if Tractebel expands its activities
more rapidly than expected, incorporating projects that are not under its
current business plan and financing them mainly with debt, to the extent that
would lead to a material deterioration in its credit protection measures. An
upgrade of Tractebel's ratings is unlikely until the UHE Jirau acquisition is
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 08, 2012);
--'National Ratings Criteria' (Jan. 19, 2011).
Applicable Criteria and Related Research
Corporate Rating Methodology
National Ratings Criteria
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
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.
Fitch Ratings Brasil Ltda.
Alameda Santos, 700 - 7 andar - Cerqueira Cesar - Sao Paulo - SP CEP 01418-100
Elizabeth Fogerty, New York, +1 212-908-0526
Press spacebar to pause and continue. Press esc to stop.