Fitch Affirms Tractebel's IDRs at 'BBB'; Outlook Stable

  Fitch Affirms Tractebel's IDRs at 'BBB'; Outlook Stable

Business Wire

SAO PAULO -- April 25, 2014

Fitch Ratings has affirmed Tractebel Energia S.A.'s (Tractebel) ratings as
follows:

--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
'AAA(bra)'.

The Rating Outlook 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 lengthened 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). The new percentage of
this project to be acquired by Tractebel reduced to 40% from 60% previously
expected, as Suez has sold part of its stake to Mitsui Corp. The company's
consolidated leverage, measured by net adjusted debt-to-EBITDA, should not
exceed 3.0 times (x), which is still consistent with its ratings. Fitch
considers as positive that the acquisition may occur only in 2016, as UHE
Jirau should migrate to Tractebel in its operational phase, reducing execution
risks.

The ratings are further supported by its prominent market position as the
largest private electric energy generation company in Brazil. Tractebel
benefits from its positive asset diversification; operational efficiency; and
the existence of long-term power purchase agreements with its clients. 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 analysis also factored 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 associated to construction are mitigated. The ratings incorporate a
moderate regulatory risk and the currently above average hydrological risk.

Robust Operational Cash Generation

Tractebel's credit profile benefits from its strong and predictable cash
generation. In 2013, EBITDA of BRL3 billion experienced a reduction of 4%
compared to 2012 as the company had its gas supply to William Arjona thermal
plant suspended by Petrobras, which led to energy purchases in the spot market
at high prices to meet its sales contract. Net revenues of BRL5.6 billion
continued to benefit from higher average energy prices, as a result of tariff
readjustments and the company's contracts portfolio management, and to a
lesser extent, higher energy sales volume. EBITDA margin dropped to 53.3% in
comparison to the range of 63%-68% in the last four years. This reduction also
reflects the continuously scenario of higher thermoelectric dispatch and
higher energy purchases for resale, activity that generates lower margins.

Sound Free Cash Flow Despite High Dividents 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 2013, cash flow from operations (CFFO) remained
robust at BRL2.3 billion and was mainly used for dividends payment (BRL1.6
billion) and capital expenditures (BRL547 million), resulting in a free cash
flow (FCF) of BRL156 million. The company has historically presented a payout
of 95% to 100%, with a temporary reduction in 2009 and 2010 in order to be
prepared for the migration of UHE Jirau project to its balance sheet. Since
this movement has been postponed, Tractebel resumed the dividends payout of
100%.

Solid Credit Metrics to Remain

Fitch believes that Tractebel will be able to keep credit metrics consistent
with its ratings even after the acquisition of UHE Jirau, with net adjusted
debt-to-EBITDA ratio below 3.0x. Positively, this acquisition may occur in
2016, after main project risks are mitigated. Fitch believes that the parent
company may also provide some flexibility in transferring this asset 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
BRL17.4 billion, mainly financed by BNDES, which up to now has been on Suez's
balance sheet.

As of year-end 2013, Tractebel's consolidated gross leverage reported was
1.3x, while its net debt-to-EBITDA ratio decreased to 0.8x from 0.9x in 2012.
As of December 2013, the company's interest coverage, as measured by EBITDA to
interest expenses was strong at 13.3x. From 2009 to 2013 the company reported,
on average, conservative net leverage and interest coverage ratio of 1.1x and
8.7x, respectively.

Credit Profile Benefits from Long-Term PPA's

Tractebel is the largest private energy generation company in Brazil, with a
total installed capacity of 7,000 MW, to be further increased to 8,500 MW
after the acquisition of 40% of the 3,750 MW of UHE Jirau. 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 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 total available energy
until 2016, being 98% in 2014 and 2015, 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, 2013, cash and marketable securities amounted to BRL1.2 billion,
covering by 1.8x its short-term debt of BRL695 million. The cash and
equivalents + CFFO/short-term debt ratio of 5.1x 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
necessary.

Manageable Investment Plan

Tractebel has made sizeable investments in the energy sector, with 87% 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.
Fitch sees as positive Suez's strategy of first developing sizeable projects
and transferring them to Tractebel only after mitigation of the main risks.

RATING SENSITIVITIES

The ratings could be negatively pressured by sizeable investments or
acquisitions currently out of the company's business plan, that could lead to
a leverage consistently above 3.5x. A potential rationing scenario could also
put pressure on the company's ratings depending on its extension. An upgrade
of Tractebel's ratings is unlikely until the UHE Jirau acquisition is
concluded or while the conditions for this transference are unknown. After
that, a positive rating action will require a net adjusted leverage below
2.0x.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013);

--'National Scale Ratings Criteria' (Oct. 30, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and
Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

National Scale Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=827803

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Contact:

Fitch Ratings
Primary Analyst
Adriane Silva, +55-11-4504-2205
Associate Director
Fitch Brazil
Alameda Santos, 700 - 7 andar
Sao Paulo, Brazil
or
Secondary Analyst
Wellington Senter, +55-21-4503-2606
Analyst
or
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Senior Director
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