Fitch Ratings has affirmed Empresa Generadora de Electricidad Itabo, S.A.'s (Itabo) 'B-' international foreign and local currency Issuer Default Ratings (IDRs) and revised its Rating Outlook to Stable from Positive. Fitch also affirms at 'B-/RR4' the US$125 million of senior notes due 2013 issued by Itabo Finance S.A. Concurrently, Fitch has affirmed Itabo's 'BBB (dom)' national scale rating.
The Rating Outlook revision reflects the potential need for additional working capital in light of low collections from distribution companies. Itabo's average collection from distribution companies during the second quarter 2008 was 74%, a decline from 93% during the same period last year and significantly below 2007 average collection rate of 101%. This reduction reflects the inability of Dominican Republic state-owned distribution companies to pass through increasing cost of electricity to end users. The rating outlook change also reflects the higher working capital needs due to rising coal prices, which also increase collections risk as fuel prices are passed through to the off-takers, increasing Itabo's electricity prices.
Itabo's ratings incorporate the risks of operating electric generation assets in the Dominican Republic (DR), where distribution companies have historically reported poor operating performance, characterized by very high losses and low collections. The company's ratings are supported by its strong competitive position as the lowest cost thermoelectric generator in the country, as well as its somewhat solid financial profile and experienced management team. Itabo operates two low-cost, coal-fueled electric generation units and sells electricity to three distribution companies through well-structured, long-term U.S-dollar-denominated purchase power agreements (PPAs).
Itabo is a thermo-electric generator in the DR and the second largest generation plant in the country. The company has a total installed capacity 433 MW of thermo-electric generation as of December 2007. The company is currently owned 50% by AES Corp.'s subsidiaries and 49.97% by the DR government, which has one sit on the board of directors. The balance is owned by former employees of CDE (Corporacion Dominicana de Electricidad). AES Dominicana manages the company under a management contract, for a fee of 2.95% of Itabo's sales, while AES Corp. indirectly controls Itabo's management board.
Itabo's RR of 'RR4' is constrained by the DR's RR cap. The company's recovery analysis is based on the lowest EBITDA reported by ITABO during the past three years to estimate a stressed enterprise value.
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Hilario
Ramirez, 212-286-3356 (Caracas)
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