CHICAGO--(BUSINESS WIRE)--Fitch Ratings has upgraded Termocandelaria Power Ltd's (TPL) foreign and local currency Issuer Default Ratings (IDRs) to BB+' from 'BB'. The Rating Outlook is Stable. Fitch also upgraded TPL's approximately USD39.6 million of outstanding senior secured notes to 'BB+' from 'BB'. The Rating Outlook is Stable.
Concurrently, Fitch has upgraded Golden Americas Ltd's (GA) foreign currency IDR to 'BB' from 'B+'. Additionally, Fitch has upgraded GA note issuance of up to USD 14.4 million due 2018 to 'BB' from 'B+/RR4'. The Rating Outlook is Stable.
The rating action reflects TPL's strengthening financial profile resulting from debt amortization as well as the expectation of significant increase in cash flow generation starting 2016. TPL's debt decreased from USD92 million in 2012 to USD67 million as of June 30, 2013 as a result of debt amortizations. Going forward, TPL might continue lowering its debt levels as its consolidated debt amortizes by approximately USD12 million per year. The company is also expected to benefit from the expiration of Termobarranquilla S.A. E.S.P.'s (TEBSA) power purchase agreement (PPA) with Generadora y Comercializadora de Energia del Caribe S.A. (Gecelca) in 2016 as the company will receive reliability payments directly from the system thereafter, which could increase TPL's consolidated EBITDA to more than USD100 million from approximately USD55 million reported as of the last 12 months (LTM) ended June 30, 2013. TPL's credit profile has benefited from the merger by absorption with Golden Gate Energy Investment Ltd at the end of 2012.
KEY RATING DRIVERS
TPL's ratings reflect the company's strong credit metrics characterized by low leverage levels, stable and predictable cash flow generation, a somewhat diversified asset base and relatively strong market share position in Colombia's thermoelectric generation capacity. Also factored into the ratings are TPL's relatively modest liquidity levels and moderate exposure to credit availability to finance potential working capital needs. TPL's ratings reflect the combined financial and operational profile of its two subsidiaries Termocandelaria and TEBSA, in which the company holds a 100% and 57% participation, respectively.
Strengthening Credit Metrics
TPL's credit metrics improved after December 2012 as a result of debt amortization and increases in cash flow generation as a result of its merger by absorption with Golden Gate Energy Investment Ltd. The company's total consolidated debt decreased to USD67 million as of June 30, 2013 from USD92 million at year-end 2012. This reduction in debt, coupled with increasing consolidated cash flow generation, lowered TPL's consolidated leverage, as measured by total debt to EBITDA to 1.3 times (x) from 2.0x and 2.9x reported at year-end 2012 and 2011, respectively. During the next three years, TPL's capital structure is expected to continue strengthening moderately as the company amortizes debt. After 2016, leverage would decrease significantly. TPL's debt is composed of USD39.6 million at Termocandelaria's level and USD27.6 million at TEBSA level.
Stable and Predictable Cash Flow
TPL's consolidated cash flow generation is considered stable and predictable and is supported by reliability payments received from the system by Termocandelaria and TEBSA's long-term PPA. Termocandelaria plant receives a fixed reliability charge from the Colombian electric system of approximately USD38 million to USD40 million per annum while TEBSA's PPA amounts to approximately USD50 million per year through 2016. After 2016, TPL's consolidated EBITDA could increase to approximately USD100 to USD120 million per year as its PPA expires and the company receives reliability payments from the system, similar to Termocandelaria.
Diversified Asset Base with Strong Market Position
TPL's ratings benefit from the company's diversified asset base as well as its strong market presence in Colombia's thermoelectric generation capacity. As a result of the merger, TPL's installed capacity now represents approximately 8.6% of Colombia's total install capacity and 28% of total thermoelectric generation capacity. This position is of particular importance for the company given frequent transmission constrains between the interior of the country where most generation capacity in Colombia resides and the northern part of the country where TPL's assets are located. Thermoelectric generation capacity in Colombia is expected to gain importance overtime for the system as most of the generation capacity expected to come online during the next decade would be hydroelectric based capacity, which increases the system exposure to droughts.
Moderate Liquidity Position
TPL's liquidity position is characterized by moderate cash balances; yet stable cash flow generation and manageable debt amortization schedule. The company has managed its balance sheet with moderate cash balances and, as of June 30, 2013 cash on hand amounted to USD7.2 million. This compares unfavorably with USD16.2 million of short-term debt. The company relies on its stable cash flow generation from operations to service its debt. During the LTM ended June 30, 2013, the company's cash flow from operations (CFO) amounted to USD84 million. The company also relied on its USD17 million of committed lines of credits to support its liquidity position. TPL's cash position is exposed to credit availability to finance potential working capital needs should TPL's Termocandelaria power plant be called to generate for prolong periods.
TPL's credit rating could benefit from debt repayment at TEBSA, further consolidated deleveraging and increase certainty regarding long-term gas supply in Colombia.
Key consideration for a negative rating action would be an increase in leverage to above 3.0x as a result of significant addition of debt to finance large capex programs.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 8, 2012;
--'Parent and Subsidiary Rating Linkage', Aug. 8 2012.
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
Parent and Subsidiary Rating Linkage