RIO DE JANEIRO--()--Fitch Ratings has affirmed Transmissora Alianca de Energia Eletrica S.A.'s (Taesa) 'BBB' Foreign and Local Currency Issuer Default Ratings (IDRs) and 'AAA(bra)' Long-Term National Scale Rating. The ratings have also been removed from Rating Watch Negative and assigned a Stable Rating Outlook.
At the same time, Fitch has assigned a Long-Term National Scale Rating of 'AAA(bra)' to Taesa's proposed third debenture issuance of up to BRL1.6 billion, divided into up to three series, with final maturities within five, eight and 12 years. The proceeds of the issuance will be used to repay existing debts from the fourth and fifth issuance of promissory notes, with outstanding balance at the end of June 2012 of BRL2.2 billion. The two promissory notes proceeds were used as bridge-loans for full acquisition of five power transmission assets (NTE, STE, ATE, ATE II and ATE III) from Abengoa Concessoes Brasil Holding S.A. (Abengoa) in two stages (November 2011 and July 2012).
The removal from Rating Watch Negative reflect Fitch's opinion that the company's financial profile, on a consolidated basis, remains strong, even after completing BRL2.1 billion in relevant acquisitions in the last 12 months. In July 2012 Taesa concluded a BRL1.755 billion equity issuance that, in Fitch's view, will allow the company to manage its financial leverage at levels commensurate with the 'BBB' rating. The rating action already incorporates most likely acquisition of stakes in 10 transmission assets from Cemig Geracao e Transmissao (Cemig GT) (National Scale Rating 'AA(bra)'), estimated to take place shortly, which should add BRL1.8 billion to the previous acquisitions.
Taesa's investment grade ratings reflect its strong and diversified power transmission assets, with stable and predictable consolidated cash flow and high operating margins. Taesa's ratings also incorporate the low business risk of its concessions, including those expected to be acquired by the company, most of which are not subject to periodical tariff reviews. Taesa's ratings are not constrained by the credit quality of one of its main shareholders, Cemig GT, since Cemig GT shares the company's control with an investment fund, and its access to Taesa's cash is limited to dividends.
Expectation of Gradual Leverage Reduction:
Fitch expects Taesa's consolidated net financial leverage close to 2.7 times (x) (on a pro forma basis) in 2012, with gradual reductions to 2.3x in 2013, and 2.0x in 2014, in case no new investments take place. The company's historically low consolidated leverage ratios, despite the substantial dividend pay outs in recent years, were more pressured after the first stage of asset acquisition from Abengoa. During the last 12 months ended on June 30, 2012, the company reported, under the Brazilian accounting BR GAAP, a total debt-to-EBITDA ratio of 4.8x and net debt-to-EBITDA ratio of 3.0x, which compare, respectively, with 2.3x and 1.6x recorded in 2010. According to Fitch's calculations, after the events of capitalization and acquisition of the stakes in Cemig GT's assets and of the remaining part of Abengoa's assets, Taesa's net leverage was close to 3.0x (on a pro forma basis).
Low Business Risk Assets:
Taesa's ratings are supported by its low business risk assets and low exposure to concession renewal risk. It is one of the largest electricity transmission companies in Brazil with 5,927 kilometers (km) of transmission lines throughout the country. The concessions for both Taesa's existing assets and those being acquired by the company have expiration dates that extend from 2030 on, which lowers the company's concession renewal risk. The company is in the process of acquiring participation which corresponds to 1,659 km of transmission lines from Cemig GT, which should increase Taesa's asset diversification and dilute any potential operational risk of company's assets.
Taesa's exposure to tariff reviews is low, given that 12 out of its 13 operating concessions and seven out of the 10 assets being acquired from Cemig GT were obtained before November 2006 and are not subject to periodic regulatory tariff review. Exposure to tariff review could increase as the company bids for new transmission concession projects in the country. According to Taesa's concession agreements dated prior to November 2006, these concessions' permitted annual revenues (PARs) will decline by 50% after the 16th year of operation. The impact of this decrease in company's cash flow generation should be mitigated by lower debt levels given that by the time revenue declines, debt used for construction of transmission lines should be fully amortized. Taesa benefits from a diversified client base and a secure payment structure.
Robust and Predictable Cash Flow from Operations:
Taesa's power transmission revenues are stable and highly predictable and are based on line availability rather than on volume transported. The concessions' PARs are adjusted annually for inflation. During the LTM ended June 30, 2012, the company reported consolidated net revenue and EBITDA of BRL1.012 million and BRL896 million, respectively, based on Fitch's criteria and under BRGAAP. This translates into an EBITDA margin of 88.5%, which is high, yet characteristic of a transmission company. Considering the acquisitions, Fitch estimates an annual EBITDA of BRL1.7 billion.
As long as Taesa does not obtain new projects to be developed, Fitch expects the company's consolidated free cash flow (FCF) to be linked to higher or lower dividend payments, with a robust cash flow from operations (CFFO). However, the criteria adopted by IFRS for the cash flow statement have misled the analysis for the LTM ended on June 30, 2012. Company's CFFO and FCF were a negative BRL522 million and BRL1,483 million, respectively, reflecting the partial acquisition of Abengoa's assets. The FCF was also negatively impacted by the distribution of BRL955 million in dividends, above the historical levels, which comprised BRL333 million paid in October 2011, relative to retained profit reserves.
Manageable Debt Profile:
As of June 2012, Taesa reported total consolidated debt of BRL4.310 million, and cash and marketable securities of BRL1.591 million. The high short-term debt of BRL2.313 million was mainly reflecting the promissory notes outstanding balance of BRL2.151 million, with the last issuance proceeds, of BRL905 million, still in the cash. The promissory notes roll over through the third debenture issuance places the short-term debt at very low levels. Although BRL904 million from the cash were used to pay the second stage of Abengoa's assets in July 2012, the capitalization of BRL1.755 million brought significant cash reinforcement until the acquisition of participation in Cemig GT assets is completed.
Taesa's strategy is to use the cash for acquisitions only after short-term debt is lengthened. The debentures will mature within five to 12 years after the issuance, and should not put major pressures on the cash during this principal grace period. Once the third debenture issuance is concluded, Taesa will present a long-term debt profile, with only BRL935 million of the existing debt maturing until 2014. Fitch also expects strong short-term debt coverage, even after the expected acquisition, based on cash-to-short-term debt and cash+CFFO to short-term debt ratios above 3.5x and 6.0x, respectively.
Key Rating Drivers:
Negative rating actions could be triggered by a deterioration in Taesa's consolidated financial profile. Investments in relevant new projects with the risks associated with the construction phase and low profitability could also pressure the ratings. The IDRs could be positively affected by a strengthening of Taesa's financial profile with reduced financial leverage and a sustainable increase of its liquidity position.
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 Metholodogy' (Aug. 8, 2012);
--'National Ratings Criteria' (Jan. 19, 2011).
Applicable Criteria and Related Research:
Corporate Rating Methodology
National Ratings Criteria