Fitch Affirms YPF at 'BB-/AAA (arg)'; Outlook Stable

BUENOS AIRES, Argentina--(BUSINESS WIRE)--Fitch Ratings affirms YPF S.A.'s (YPF) Issuer Default Ratings (IDR) and debt ratings as follows:

--Long-term foreign currency IDR at 'BB-';

--Long-term local currency IDR at 'BB';

--National long-term rating at 'AAA (arg)';

--Notes due 2028 at 'BB-';

--Debt Issuance Program for USD 1 billion (2008) at 'AAA (arg)';

--Debt Issuance Program for USD 1 billion (2002) at 'AAA (arg)';

--Senior unsecured ARP 205 million notes at 'AAA (arg);

--Senior unsecured ARP 143 million notes at 'AAA (arg);

--Senior unsecured USD 70 million notes at 'AAA (arg);

--Equity rating; at 'Level 1 (arg)'.

The Rating Outlook on the long-term IDRs is Stable.

YPF's ratings reflect its solid business profile as Argentina's dominant integrated oil company, Fitch's expectation that its credit metrics will remain strong and incorporate its weak upstream metrics, asset concentration in Argentina and its exposure to government intervention in the energy sector. The two-notch foreign currency IDR above the country ceiling of Argentina is supported by YPF's reliable strong internal cash flow generation, high level of dollar-denominated export revenues relative to long-term debt maturities which mitigates its exposure to currency mismatch, its right to maintain up to 70% of export revenues offshore which mitigates transfer and convertibility risk, and the controlling ownership by financially strong Repsol YPF. In addition, the company has a track record of payment during distressed sovereign scenarios.

Key credit concerns center on YPF's reserves depletion and production decrease rate, which have resulted in weak operating metrics as measured by a reserve life of 4.9 years which is well below Fitch's ideal range of 10 years. In 2009, total production was 206 million barrels of oil equivalent per day (boepd) compared to 223 million in 2008, a 7.6% year-over-year decrease. Total proven (p1) reserves decreased by 10.4% in 2009 to 1,014 million boe. Total proven developed reserves increased to 79% from 75%, near the limit of Fitch's optimal range of 60% - 80%. Fitch believes there is potential for YPF to see a further deterioration in its operating metrics over the next two years as the company's operations are concentrated in mature fields and new projects have a long lead time.

Fitch expects YPF's EBITDA to climb to more than USD3.5 billion in 2010, from USD 3.1 billion in 2009, and its cash from operations to exceed USD2.2 billion. The improvement in cash generation will primarily reflect price increases in the refined product business during the first half of 2010, and the full impact of cost-cutting measures adopted in 2009. Fitch acknowledges and factors into the current ratings, YPF's renewed focus on exploration in an attempt to increase its reserve base and anticipates capital expenditures to increase to the range of USD2 billion-USD2.5 billion in 2010 and 2011 up from USD1.5 billion in 2009.

Pursuant to YPF's shareholders agreement, the company will continue with an aggressive dividend policy with a payout equivalent to 90% of year-end net income. In 2010, YPF will most likely finance its capex and dividend payments with its cash generation and cash in hand. However, Fitch anticipates YPF will increase its indebtness during 2011 and 2012, while maintaining a debt to EBITDA ratio below 1.0 times (x), and a consolidated debt to reserves ratio below USD6 /barrel of oil equivalent (boe), which are consistent with current ratings. YPF's current low leverage as measured on a consolidated debt / boe basis of USD 1.8 /boe provides the company flexibility to raise debt within the current ratings.

Fitch views YPF's liquidity as strong. As of March 2010, the company had USD897 million of cash and marketable securities and USD1.6 billion of total debt. Of the USD 1 billion of short-term debt, USD661 million related to bank debt, USD285 million is debt with related parties and USD58 million correspond to a bond that matures in March 2011. As of March 2010, 65% of total debt is concentrated in the short-term; or 46% excluding debt to related parties. Management expects to improve this profile over the medium term but its success will depend upon the financial market conditions. Repsol has maintained its support to YPF, as reflected by a USD308 million loan from Repsol Netherland Finance, and a guarantee extended to YPF's USD300 million loans granted in May 2009.

YPF S.A. is Argentina's largest integrated oil and gas company. It is controlled by Repsol YPF (rated 'BBB+', Outlook Stable by Fitch). The Petersen Group has a 15.1% stake in YPF and the option to acquire an additional 10% until 2012. The shareholders have agreed that YPF will make an IPO for approximately 20% of its equity, after which Repsol's stake in YPF would be reduced to approximately 55%, although Repsol will maintain a controlling stake in YPF.

YPF's ratings reflect the application of Fitch's current criteria, which are available at www.fitchratings.com and specifically include the following reports:

--'Corporate Rating Methodology' (Nov., 24, 2009);

--'National Ratings - Methodology Updated' (Dec.18, 2006);

--'Rating Oil and Gas Exploration Companies' (April 7, 2010);

--'Oil and Gas Sector Exploration and Production Rating Methodology' dated Oct. 16, 2009;

--'Parent and Subsidiary Rating Linkage' (June 19 2007);

--'Rating Corporates Above the Country Ceiling' (Aug. 8, 2005).

Additional information is available at www.fitchratings.com.

Related Research:

Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=489018

National Ratings - Methodology Update
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=305544

Rating Oil and Gas Exploration and Production Companies: Sector Credit Factors
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=509845

Parent and Subsidiary Rating Linkage Criteria Report
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=534826

Rating Corporates Above the Country Ceiling
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=246654

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