Fitch Expects to Rate E-CL's USD400MM Proposed Debt Issuance at 'BBB-'

SANTIAGO, Chile--(BUSINESS WIRE)--Fitch Ratings expects to assign a 'BBB-' international scale rating to E-CL S.A. (E-CL) USD400 million proposed senior unsecured debt issuance. Proceeds from the 10-year notes will be used for the prepayment of existing indebtedness and general corporate purposes, including funding E-CL's capital expenditure program. The expected rating is equivalent to E-CL's assigned foreign currency Issuer Default Rating (FC IDR). The Rating Outlook is Stable.

E-CL's ratings reflect the company's sound financial profile, balanced contracted position with its generation matrix, experienced management team, as well as the support historically provided by its principal shareholders. Credit risks associated with the company include the potential to embark on a large investment program which could result on incremental leverage.

E-CL benefits from long-term power purchase agreements (PPAs) with financially strong counterparties, primarily in the mining sector. These contracts include adequate fuel indexation clauses based on the company's generation mix, which mitigate its exposure to fuel price volatility.

E-CL's principal shareholders, Gaz de France Suez S.A. (GDF Suez) (52.4%) and Corporacion Nacional del Cobre de Chile (Codelco, IDR rated 'A' by Fitch) (40%) have actively participated in the capital structure of the company through either intercompany loans or equity contributions. As of September 2010, E-CL's debt with shareholders amounted to USD394,6 million.

Strong Financial Performance, Further Improvement Expected:

E-CL's operating cash flow and EBITDA is expected to continue to strengthen based on the company's conservative commercial profile, as well as the start-up of its two 165 MW coal-fired power plants, Central Termoelectrica Andina (CTA) and Central Termoelectrica Hornitos (CTH), currently under construction. The plants are anticipated to start operations in the first and second quarter of 2011, respectively. CTA has a 21-year, 150 MW PPA with Codelco and CTH has a 15-year 150 MW PPA with Minera Esperanza, which are expected to provide additional stable cash flows to E-CL.

EBITDA reached USD247 million, while funds from operations (FFO) amounted to USD241 million in the first nine months of 2010. Free cash flow (FCF) was USD14 million during that period and is expected to be slightly negative by the end of 2010 due to USD95.8 million of additional investments needed to complete the CTA and CTH projects. However, following the completion of these projects, Fitch expects FCF to improve significantly as a result of both an increase in FFO and the company's ability to reduce capital expenditures to maintenance levels starting in 2011 (assuming no new PPAs are signed, which would require additional investments). As of September 2010, E-CL's total debt/EBITDA ratio reached 2.3 times (x), while net debt/EBITDA ratio was 1.8x.

Solid Capital Structure:

E-CL maintains a strong capital structure. Total debt amounted to USD765 million in September 2010, including debt with shareholders of USD394,6 million (in November E-CL made a payment of USD30 million), part of what E-CL plans to refinance with the proceeds from the proposed transaction. Debt also includes a 15-year USD289 million loan with the IFC & KfW (which is part of a USD393 million project finance agreement for CTA), and a USD50 million loan from Banco Santander. Furthermore, it should be noted that the company has access to USD223.9 million in additional funds through both the aforementioned project finance agreement with the IFC & KfW (USD104 million of which had not been disbursed as of September 2010) and non-committed credit lines for approximately USD120 million.

E-CL enjoys a solid liquidity position, recording USD187 million in cash and marketable securities as of September 2010. Short-term debt, amounted to USD453 million, which is primarily owed to shareholders.

Potential Large Capex Plan, Incremental Debt:

While capital expenditures may decline after the current capacity expansion program is concluded, there is also a chance that E-CL may undertake significant investments over the next three years, if new PPAs are signed to back these programs. At present, the company has the environmental approvals to build two 375 MW coal-fired plants (including transmission facilities and a mechanized dock) next to CTA and CTH. The company is currently accepting construction bids on one of them, with construction being contingent on the signing of a new PPA (which would most likely be related to one of the mining projects currently being developed). If carried out, the program is expected to be funded primarily with cash on hand, future cash flow generation and an increase in debt levels throughout that period. The latter may lead total debt/EBITDA to reach nearly 3.5x at its peak, rapidly decreasing once the new projects start operations.

E-CL is an operating-holding company, with assets in electricity generation and transmission and natural gas transportation in the Northern Electricity Interconnected System of Chile (SING). The company was created under its current form at the end of 2009. Its consolidated accounts comprise the former power generator, Edelnor S.A. as well as 100% of Electroandina S.A, Gasoducto Nor Andino Chile S.A., Gasoducto Nor Andino Argentina S.A. and the project under development CTA. E-CL owns 60% of CTH. Both projects CTA and CTH are close to 90% completion. E-CL is the largest generation company in the SING, representing 49% of the installed capacity (1,795MW), and 2,125MW once CTA and CTH start operations. The company has PPA's for an aggregate 1,171MW, rising to 1,319MW starting in 2012, with an average remaining life of 11 years.

Additional information is available at www.fitchratings.com and www.fitchratings.cl

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 13, 2010).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646

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