CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign a rating of 'BBB(EXP)' to Enersis Americas S.A.'s proposed senior unsecured US dollar denominated bond issuance of up to USD750 million. The proceeds will be used to repay the company's notes due 2016, and remaining funds will be temporarily invested pending formalization of the company's proposed merger of Endesa Americas S.A. (EOCA) and Chilectra Americas S.A. (CHIA) into Enersis Americas S.A. (ENIA).
The notes will rank pari passu in priority of payment with all other ENIA's senior unsecured debt, and would be rated the same as all of ENIA's senior unsecured obligations. Upon approval of the merger, the company will acquire up to all outstanding common shares of EOCA under a tender offer (known as 'OPA' by its Spanish acronym) that expires on October 28.
The merger is still subject to meeting the conditions related to the statutory merger dissenters' withdrawal rights. If shareholders exercising the withdrawal rights for ENIA, EOCA and CHIA exceed 10%, 10% and 0.91% respectively, the merger will not be formalized. Fitch believes the future conclusion of the tender offer and merge of EOCA and CHIA into ENIA is neutral to the company's ratings. The operation will be funded with a combination of cash on hand, and the remaining notes' proceeds. Shareholders will also have until Oct. 28, 2016 to exercise their withdrawal rights.
The ratings incorporate the assumption that ENIA's organizational structure will be simplified by merging the intermediary entities EOCA and CHIA. After the transaction has been completed, EOCA and CHIA's shares will be exchanged for ENIA's shares.
ENIA's investment-grade ratings reflect its solid business platform with a strong degree of business and geographic diversification, and solid financial/operational metrics. ENIA operates in four countries in the generation, transmission and distribution businesses, but is confronted by several economic challenges facing the region, particularly in Brazil (rated 'BB'/Outlook Negative) and Argentina (rated 'B'/Outlook Stable). The risk of operating in lower-rated sovereign environments is somewhat mitigated by the size of the exposure to these higher risk markets; only 30% of the company's 2015 pro forma EBITDA (excluding Chile) relates to non-investment-grade countries (Argentina and Brazil) and approximately 67% of the dividends paid to ENIA relate to investment-grade countries, mainly Colombia.
The Stable Outlook is driven by ENIA's adequate liquidity profile and credit metrics and the expectation that a balanced mix between generation and distributions businesses will be maintained.
ENIA's credit risks include potential pressures from shareholder Enel S.p.A ('BBB+'/Stable) to pay out any extraordinary dividends, and possible environmental and/or political issues that could result in cost overruns or modifications of projects under construction - although these risks appear manageable. The ratings also consider ENIA's dependence on dividend payments from its subsidiaries to repay its own debt and incorporate the seasonal and regional cash flow volatility.
KEY RATING DRIVERS
STRONG LEVERAGE METRICS:
On a pro forma basis, ENIA maintains a strong capital structure with gross leverage defined as total debt-to-adjusted EBITDA of 1.5x as of December 2015. Adjusted EBITDA for 2015 was USD2.4 billion, versus USD3.4 billion in the predecessor company. Results improved slightly during the first half of 2016 (1H16), with EBITDA of approximately USD1.3 billion, which was approximately 12% higher than 1H15 pro forma EBITDA (excluding the Chilean operations). Argentina and Brazil represented approximately 35% of the company's EBITDA generation during 1H16. Improved results for 2016 were supported by better results in the generation segment in the region, coupled with better results in the distribution business for Argentina and Peru which partially offset the deteriorated results related of the Brazilian distribution business. Fitch expects EBITDA for 2016-2019 to be approximately USD2.5 billion-USD3.3 billion and gross leverage measured as total debt/EBITDA to remain below 2.0x.
MODERATE EXPOSURE TO BRAZIL:
Fitch believes that after the spinoff and as a result of the company's decision to spin off the Chilean assets from the precedent ENIA portfolio, the volatility on the company's cash flow has increased moderately. Brazil's economic downturn led to lower electricity demand and higher energy losses affecting the company's distribution results, which was offset by the improved results in Peru and Argentina. As of December 2015, Brazil and Argentina represented approximately 30% of the company's EBITDA; Fitch believes the company's exposure to Argentina and Brazil is mitigated by the company's solid cash flow generation from the remaining investment grade countries, which comfortably covers its hard currency denominated debt service. Per Fitch's criteria, ENIA's applicable country ceiling is Peru's of 'A-', and the ratings are not constrained by the country ceiling of Brazil.
MANAGEABLE INVESTMENT PROGRAM:
Fitch expects capex investment for 2016-2019 to amount to approximately USD4 billion, with 75% invested in distribution mainly to reduce losses, which would improve the company's results. Fitch also believes the company's investment plan should not require additional significant indebtedness given its solid free cash flow (FCF) generation. During 2015, the company invested USD587 million in generation on a pro forma basis (excluding the Chilean operations). The main generation investments during 2015 were related to the construction of the hydro terminal El Quimbo (400 MW), in Colombia, which began operations in December 2015.
Fitch's key assumptions within the rating case for ENIA's include:
--Total production of 44,000 - 47,000 GWh on average per year.
--Average margins per MWh for generation during 2016-2019 of USD11 for Argentina, USD40 for Brazil, USD78 for Colombia, and USD37 for Peru;
--Average margins per MWh for distribution during 2016-2019 of USD22 for Argentina, USD55 for Brazil, USD77 for Colombia, and USD37 for Peru;
--An average of USD1 billion of annual capex;
--Dividends at 50% of net income.
Future developments that could, individually or collectively, lead to negative rating actions include:
--A change in ENIA's power generation business' commercial policy that results in an imbalanced long-term contractual position.
--A material and sustained deterioration of credit metrics (reflected in a debt/EBITDA ratio greater than 3.5x and EBITDA/interest coverage below 4x).
--Deterioration of the macroeconomic conditions, and respective sovereign ratings, in the company's key markets.
--A significant increase in ENIA's exposure to non-investment-grade countries; however, a downgrade of Brazil's sovereign rating would not necessarily trigger a downgrade of ENIA's ratings.
Considerations that could lead to a positive rating action (Rating or Outlook) include:
--A material improvement in credit metrics that could be sustained over time.
--A reduction in debt levels and higher earnings retention.
--An improvement in the mix of cash flow generation towards higher credit quality markets would be viewed positively.
Once the company establishes a long-term history of sustained gross debt/adjusted EBITDA ratios under 2.5x with a balanced geographical and business mix, the company's credit ratings could be upgraded or the Outlook revised to Positive.
The company's liquidity continues to be solid. On a pro forma basis, the company has nearly USD1.7 billion of cash and equivalents as of June 2016, and has available committed lines of credit totaling USD211 million. This compares favorably with short-term financial debt of USD814 million for the same period.
FULL LIST OF RATING ACTIONS
Fitch currently rates Enersis Americas S.A. as follows:
--Long-Term Foreign and Local Currency Issuer Default Ratings 'BBB', Outlook Stable;
--International senior unsecured bond ratings 'BBB', Outlook Stable;
--Long-term national scale rating at 'AA-(cl)', Outlook Stable
--National senior unsecured bond ratings at 'AA-(cl)';
--National short-term debt rating at 'N1+(cl)';
--National Equity Rating at 'Primera Clase Nivel 1 (cl)'.
Date of Relevant Rating Committee: Sept. 27, 2016
Additional information is available on www.fitchratings.com.
Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016)
Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.
The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.
For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.