Fitch Affirms Endesa Chile's IDRs at 'BBB+/AA(cl)'; Outlook Stable
BUENOS AIRES, Argentina -- August 9, 2013
Fitch Ratings has affirmed the foreign and local currency Issuer Default
Ratings (IDRs) of Empresa Nacional de Electricidad S.A.'s (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+/AA(cl)'and its national Equity Rating at 'Primera Clase Nivel 1 (cl)'.
These rating actions affect approximately USD917 million of outstanding Yankee
bonds and USD594 million of domestic bonds. The Rating Outlook is Stable.
KEY RATING DRIVERS
Endesa Chile's ratings reflect a moderate risk business profile underpinned by
the company's conservative commercial strategy and geographical
diversification, operations in constructive regulatory environments, and
strong financial metrics. Endesa Chile's ratings are aligned to those of
Enersis S.A. due to the strong legal, operation and strategic ties. The Stable
Outlook is driven by Endesa Chile's adequate liquidity profile and credit
Credit risks associated with the company include possible pressures from the
shareholder Enel S.p.a. (Fitch IDR of 'BBB+', Rating Watch Negative ) to
increase dividends, possible environmental and/or political issues which could
result in cost overruns or modifications of projects under construction,
regulatory uncertainties in Argentina (which only represents 3% of EBITDA),
although these risks appear manageable.
Conservative Commercial Policy
Endesa Chile's conservative commercial policy is a key strength to reduce the
company's exposure to hydrology risk as hydroelectric capacity represents 58%
of its generation matrix as of June 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 draught, the
company may need to buy energy in the spot market to fulfill its contracts.
Geographic diversification through Latin America provides a natural hedge to
different regulations and weather conditions.
The company has a strong competitive position in Chile which represents 35% of
latest 12 months (LTM) consolidated EBITDA as of June 2013. 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 Quintero liquefied natural gas (LNG) regasification
facility, which provides natural gas to Endesa Chile. Access to lower cost
natural gas, favorably positions the company against its competitors that use
higher cost fuels. In 2010-2013, an unusual prolonged period of draught in
Chile, the company's power plants San Isidro I and II were able to operate
continuously with such gas.
Moderate Medium Term Expansion Program
Bocamina II coal plant began its commercial operations in Chile in October
2012, adding 350MW of thermal power generation. The over one year delay in its
start-up during a dry season has been partially mitigated by the company's
conservative commercial policy and the constant operation of its plants San
Isidro I and II with competitive natural gas from LNG Quintero.
Endesa Chile's main project under construction is Quimbo, a 400 MW
hydroelectric plant in Colombia. With a total investment of USD837 million,
Quimbo is expected to begin operations in December 2014. Endesa Chile
continues to study several projects in Chile, Colombia and Peru including
Taltal conversion to combined cycle (120MW), Los Condores (150MW), Curitamba
(188MW), Punta Alcalde (740MW), Neltume (490MW). It also continues the studies
to construct Hydroaysen hidro power plant which would add 2,750MW of capacity
Strong Credit Metrics
Fitch expects Endesa Chile to maintain a relative stable EBITDA of
approximately USD2 billion per annum in 2013 - 2014, which is expected to
increase in 2015 after Quimbo begins to operate. Annual capex (including
maintenance) is expected to decrease to a level of USD400 million to USD550
million per annum. Fitch expects future capacity additions not to require
additional indebtedness as free cash flow is expected to remain positive.
Endesa Chile's credit profile is supported by ample consolidated liquidity
with USD315 million of cash as of June 2013 and access to a USD425 million of
secured committed revolving credit lines. At that date, total debt was USD3.8
billion and debt maturities for the second half of 2013 amounted to USD943
million, including a Yankee bond for USD400 million. Such bond was amortized
at maturity with proceeds from a commercial credit line between Enersis and
Endesa Chile. Endesa Chile expects to repay such credit by year end with
dividend proceeds from regional affiliates.
Going forward, debt maturities are manageable with USD331 million due in 2014
and USD420 million due in 2015. Fitch expects the company to refinance a
portion of its debt maturities while interest coverage, as measured by
EBITDA-to-interest remains near 5.0 times (x) and leverage as measures by net
debt-to-EBITDA to remain near 2.0x, between 2013 - 2016. For the LTM period
ended June 2013, the company's EBITDA was USD1.8 billion, similar to 2012's.
The company's credit metrics remained strong, and were reflected in an
EBITDA-to-interest of 5.9x and net debt-to-EBITDA of 1.9x.
A change in Endesa Chile's commercial policy that results in an imbalanced
long-term contractual position, and/or a material and sustained deterioration
of credit metrics (reflected in a debt to EBITDA ratio greater than 3x and
EBITDA to interest coverage below 4x) could result in a negative rating
action. A material improvement in credit metrics that could be sustained over
time, reduction in debt levels and in pressure from shareholders to distribute
dividends could result in a positive rating action.
Endesa Chile has a total installed capacity of 13.794MW distributed in Chile,
Colombia, Peru and Argentina. In addition, it has 987MW in Brazil. The company
is the largest electricity generation company in Chile, owns and operates
approximately 32% of the country's total generating capacity, and operates 38%
of the Central Interconnected System (SIC) and 12% in the Northern
Interconnected System (SING), installed capacity, respectively. Endesa Chile
also has ownership interests in electric generation in Argentina, Colombia,
Peru and Brazil. The company is 59.9% owned by Enersis, a diversified utility
holding company based in Santiago, Chile (Fitch IDR of 'BBB+'). In turn,
Enersis is 60.6% owned by Endesa-Spain (Fitch IDR of 'BBB+', Rating Watch
Negative), Spain's largest electrical utility. Endesa-Spain's ratings are
linked to and capped by those of its majority shareholder (92%), Enel SpA,
(Fitch IDR of 'BBB+', Rating Watch Negative) based on strong legal,
operational and strategic links.
Fitch has affirmed Endesa Chile's ratings as follows:
--Senior unsecured notes USD200 million due 2015 at 'BBB+';
--Senior unsecured notes USD230 million due 2027 at 'BBB+';
--Senior unsecured USD220 million notes due 2037 at 'BBB+';
--Senior unsecured USD40 million notes due 2097 at 'BBB+';
--Senior unsecured CLF4 million notes due 2028 at 'AA(cl)';
--Senior unsecured CLF10 million notes due 2029 at 'AA(cl)';
--Commercial paper USD35 million at 'N1+/AA(cl)';
--Commercial paper USD45 million at 'N1+/AA(cl)';
--Commercial paper USD45 million at 'N1+/AA(cl)';
--Commercial paper USD75 million at 'N1+/AA(cl)';
--Debt Program N 317 for CLF4 million at 'AA(cl);
--Debt Program N 318 for CLF4 million at 'AA(cl);
--Debt Program N 522 for CLF10 million at 'AA(cl).
Fitch has also withdrawn the ratings of the following notes, which were
amortized before its scheduled maturity:
--Senior unsecured CLF4 million notes due 2027';
--Senior unsecured CLF1.5 million notes due 2022;
Fitch has also withdrawn the rating of the Debt Program N 264, as there are no
Additional information is available at www.fitchratings.com.
Applicable Criteria and Research:
--'Corporate Rating Methodology' (Aug. 5, 2013);
--'Parent and Subsidiary Rating Linkage' (Aug. 5, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and
Parent and Subsidiary Rating Linkage Fitch's Approach to Rating Entities
within a Corporate Group Structure
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