CHICAGO & CARACAS, Venezuela--(BUSINESS WIRE)--Fitch Ratings has affirmed Empresa Generadora de Electricidad Haina, S.A.'s (HAINA) Foreign Currency and Local Currency IDRs at 'B' with a Stable Outlook. A full list of ratings follows at the end of this release.
HAINA's ratings reflect the electricity sector's high dependency on transfers from the central government to service its financial obligations, a condition that links the credit quality of the distribution (EDEs) and generation companies in the country to that of the sovereign. Low collections from end-users and high electricity losses have undermined distribution companies' cash generation capacity, exacerbating generation companies' dependence on public funds to cover the gap produced by insufficient payments received from distribution companies.
Fitch expects the continuation of recent policy changes to allow EDEs to reach breakeven cash flow generation in the medium-term. Yet, the expiration of the stand-by arrangement (SBA) with the International Monetary Fund (IMF) on Feb. 28, 2012 holds the potential to derail the modest progress achieved by the sector so far. HAINA's ratings also consider its solid asset portfolio, strong balance sheet and well-structured PPAs, which contribute to strong cash flow generation and bolster liquidity.
The electricity sector registered energy losses of 31.9% and an average collection rate of 89.8% both by October 2012, rendering the cash generation capacity of the distribution companies very weak as evidenced by a Cash Recovery Index of 61.2%, still below the 70% target established under the recently expired IMF SBA. This situation reinforces the sector's dependency on public transfers and makes it a high risk sector, especially at a time of rising fiscal vulnerabilities affecting the Central Government's fiscal stance (see Fitch, Dec. 11, 2012)
HAINA's ratings are supported by its diversified portfolio of generation assets, the use of various sources of fuel in its plants, its strong market position and operational efficiency. HAINA'S generation assets comprise plants that use fuel oil, diesel, coal and wind located throughout the country. This provides the company with different positions on the dispatch merit list, reinforcing the company?s operational results.
HAINA continues to post a strengthening EBITDA in support of increasing Funds From Operations (FFO) and adequate credit metrics for the rating category. For the LTM period ended September 2012, the company reported EBITDA of USD 130 million, an increase from USD112 million in fiscal year 2011, while its FFO stood strong at USD 120 million. Its interest coverage and net leverage stood at 4.3x and 1.1x both with respect to EBITDA.
The company received an extraordinary payment from the government during the month of September 2012 (USD 211 million) which contributed to positive cash flow generation of USD 189 million and a collection rate from distribution companies of 95% both by September 2012. The payment was eventually achieved through a public bond placement in the local market after difficulties in making good on its agreed target to maintain Days-of-Sale (DOS) at 60 days average. HAINA closed the third quarter with approximately 70 DOS following said payment. Fitch expects the continuation of arrears accumulation to add further volatility to HAINA's cash flow generation in the future.
HAINA's debt structure with staggered maturities and a 3.5 average life contribute to lowering liquidity risk. As of Sep. 30, 2012, HAINA had cash and marketable securities balance of USD241 million providing an ample liquidity cushion to meet operational and financial needs.
Fitch affirms HAINA's ratings as follows:
--Foreign Currency IDR at 'B'; Outlook Stable;
--Local Currency IDR at 'B'; Outlook Stable;
--National Long-term rating at 'A-(dom)'; Outlook Stable;
--USD175 million notes due 2017 at 'B/RR4';
--Sr. unsecured notes 2016 at 'A-(dom)'.
Factors that could lead to a change in the assigned ratings:
A positive rating action could follow if the DR sovereign's ratings are upgraded or if the sector achieves financial sustainability through properly policy implementation.
A negative rating action would follow if the DR sovereign's ratings are downgraded, if further deterioration of the sector's key performance indicators reinforces the dependence on government transfers or if the company's operational and financial performance deteriorates to the point of increasing the ratio of Debt to EBITDA to 5x in a sustained fashion.
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 08, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology