BUENOS AIRES, Argentina--(BUSINESS WIRE)--Fitch Ratings has affirmed the foreign and local currency Issuer Default Ratings (IDRs) of Transportadora Gas del Norte S.A.'s (TGN) at 'CCC' and its long-term national scale rating at 'CCC(arg)'. In addition, Fitch has affirmed TGN's national Equity Rating at Primera Clase Nivel 4.
KEY RATING DRIVERS
Limited Ability to Generate Cash: The company's ability to generate cash has been severely affected by a tariff structure frozen since 1999, inflation, limitations on natural gas exports, and peso depreciation. Absent a tariff increase, or any additional source of funds, TGN's EBITDA is expected to be negative by year end 2013 and to increase in magnitude over the next few years.
Weak Credit Profile Following Debt Restructuring: On Aug. 8, 2012, the company reached consent with 88.04% of the bondholders to restructure its debt and proceeded to issue USD170.45 million notes due in 2019 and USD56.8 million claim protection notes which matured on Aug. 22, 2013. In December 2012, TGN issued USD48.9 million notes due in 2017, to restructure a portion of the debt in default (discussed below). Fitch anticipates that TGN's ability to face interest payments on the new debt will be extremely limited due to its weak operating performance, which is reflected in its 'CCC' rating. The 'RR4' Recovery Rating on the notes indicates a recovery prospect of 31%-50%. Fitch notes that interest is expected to capitalize during the first three years with a portion capitalizing in year four.
Uncertain Regulatory Environment: Tariffs have remained frozen since 1999. Although the government ratified a 20% tariff increase in April 2010, the regulatory entity (ENARGAS) has failed to approve the new tariff scheme. Should such tariffs be invoiced by TGN, the funds received would be administered by a special fund and would be used to finance capital expenditures.
Debt in Default: As of June 2013, outstanding notes in default amount to USD6.3 million of principal which initially matured in December 2012, but which TGN defaulted on in December 2008. The 'C' rating of the 2012 notes reflects exceptionally high levels of credit risk. The 'RR5' indicates the expectation of below-average recovery prospects given default.
As of June 2013, TGN had USD233 million of financial debt with 95% consisting of long-term debt; all its debt is denominated in US dollars. TGN?s cash position at the end of June, 2013 was USD91 million. During 2012, TGN's EBITDA decreased to USD18 million from USD48 million in 2010. Cash generation is expected to continue to deteriorate on the back of frozen tariffs, increasing costs, and the reduction in its export revenues. Capital expenditures decreased to a record low of USD10 million in 2012 from USD15 million in 2011. TGN had built up cash during the suspension of principal and interest payments, prior to its debt restructuring in 2012. The company is expected to use such funds to finance working capital needs and operating cost structure.
A material deterioration in its liquidity position that affects TGN's ability to meet operating costs and/or the non-payment of interest or principal would lead to a negative rating action. An adequate tariff review that restores TGN's economic equilibrium could potentially result in a positive rating action.
Fitch has affirmed TGN's ratings as follows:
--USD250 million notes Series A at 'C/RR5' and national scale rating at 'D(arg)';
--USD 250 million notes Series B at 'C/RR5' and national scale rating at 'D(arg)';
--USD 170.45 million Step-up Notes at 'CCC/RR4/CCC(arg)';
--USD 49.9 million notes at 'CCC(arg)';
--Equity rating at Primera Clase Nivel 4
Fitch has also withdrawn the rating of TGN's USD56.8 million Claim Protection Notes (rated 'CCC/RR4/CCC(arg)' which expired on Aug. 22, 2013.
TGN is one of the two largest transporters of natural gas in Argentina, delivering approximately 40% of the country's total gas consumption. The Argentine government has intervened into TGN's administration since December 2008. The designated government's interventor is responsible for supervising all actions related to the public service. TGN's main shareholders are Gasinvest S.A. (56.35%) and Blue Ridge Investments LLC (23.53%), while 20% is floating in the market. Gasinvest S.A. is in turn owned by Tecpetrol Internacional SL (27.24%), Total Gas y Electricidad Argentina S.A (20.60%), Total Gasandes (6.63%), Compania General de Combustibles S.A. (27.24%), RPM Gas S.A. (18.29%).
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage