Fitch Ratings has affirmed Enel Fortuna's foreign and local currency Issuer Default Ratings (IDRs) at 'BBB'. The rating action applies to approximately USD48 million of notes outstanding due in 2013. The Rating Outlook is Stable.
The ratings reflect Enel Fortuna's strong credit metrics, which are characterized by low leverage, healthy interest coverage and stable cash flow generation. The company's rating profile is bolstered by its favorable contracted position, its competitive dispatch position and the low foreign-exchange risk. The rating also incorporates potential weaknesses, including exposure to hydrology, commodity price risks, regulatory considerations and potential for long-term competitive price pressures.
After the company repays its outstanding notes in 2013, which represent 100% of total debt, and the current covenants extinguished along with the debt, the company could add debt to fund capital investments. This may or may not have a significant impact on the company's financial profile.
Stable and Predictable Cash Flow Generation:
Enel Fortuna's ratings incorporate the company's predictable cash flow generation and somewhat stable revenues. This is a result of the company's contracted position and its medium-to-low exposure to hydrology risk due to its large storage reservoir. Enel Fortuna's revenues during the past years were strong primarily because of prevailing spot market prices and higher contracted prices. The higher spot prices generally reflect the high fuel cost for thermoelectric generation, increasing demand and a tighter supply/demand balance.
The company's contracted position adds a measure of stability and predictability to its cash flows and limits its exposure to variable spot market sales prices. Fortuna currently has power purchase agreements (PPAs) in place with local distribution companies in Panama through 2029. The company has entered into PPAs for approximately 100% of its firm capacity over the next three years, and thereafter its contractual position declines significantly. This contracted position compares favorably with the company's firm capacity of approximately 284MW. The Panamanian distribution companies, Fortuna's counterparties, appear to have the sufficient credit quality and financial ability to support their respective obligations under the PPAs.
Strong Credit Metrics and No Foreign Exchange Risk:
Enel Fortuna's credit-protection measures are consistent with an investment-grade rating and are considered strong for the rating category. Enel Fortuna reported financial leverage, as measured by total debt to EBITDA, of 0.5 times (x) as of the year-end 2011. Interest coverage for the same periods were healthy and above average for similar companies in the region at 13.8x. As of year-end 2011, Enel Fortuna reported an EBITDA of approximately USD88.7 million on revenues of USD185 million. Total debt at Dec. 31, 2011 was USD48.1 million, down from USD68.6 million in 2010. Going forward, the company is expected to continue reporting strong credit metrics, supported by strong cash flow generation and low debt levels and favorable amortization schedule. The company is expected to continue paying high dividends to its shareholders absent attractive growth opportunities within the country. Enel Fortuna's liquidity position is supported by its strong cash flow generation and manageable debt service, which amounts to approximately USD27.4 million annually. Cash on hand as of Dec. 31, 2011 amounted to approximately USD30.4 million.
Enel Fortuna's ratings are not constrained by the sovereign rating of Panama as access to foreign exchange is not limited by finite foreign-exchange reserves or controls. Panama's track record of using the U.S. dollar and allowing private-sector debt repayment during periods of sovereign default allows entities in Panama to be rated above the 'BBB' sovereign rating and up to a country ceiling of 'A', based on the underlying corporate credit rating of the entity.
Exposure to Regulatory Risk:
The company's ratings also reflect its exposure to regulatory risk. Historically, generation companies in Panama were competitive unregulated businesses free to implement their own commercial strategies. In the past years, the increase in electricity prices has resulted in increased government intervention in the sector in order to curb the impact of high energy prices for end-users.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 16, 2010).
Applicable Criteria and Related Research:
Corporate Rating Methodology
70 West Madison St.
Chicago, IL 60602
Joe Bormann, CFA
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