Fitch Affirms Celpa's IDRs at 'B-'; Outlook Revised to Positive
RIO DE JANEIRO--(BUSINESS WIRE)--Fitch Ratings has affirmed Centrais Eletricas do Para S.A. (Celpa)'s ratings (Celpa) as follows:
--Foreign and Local currency Issuer Default Ratings (IDRs) at 'B-';
--National scale rating at 'BB+(bra)'.
Fitch has also revised the Rating Outlook to Positive from Stable.
KEY RATING DRIVERS
Celpa's ratings reflect its still high financial leverage and reduced operating cash generation. Fitch believes that the company's progress, achieved mainly in the third quarter of 2013, is in accordance with the agency's initial expectations.
The ratings also incorporate how the extended debt maturity schedule and reduced financial cost benefit the company's credit profile. Fitch views as positive Celpa's parent Equatorial Energia S.A. (Equatorial)'s support through capital injections, capitalization of debts and loans guarantee. Regulatory risk of the power sector is considered moderate and hydrological risk in the sector is currently above average.
The Positive Outlook reflects Fitch's expectation that Celpa will succeed in its challenge to improve operational efficiency, particularly with regards to the high level of energy losses. It also incorporates potential new capitalization of debt from the parent, bringing its credit metrics to more conservative levels.
Weak Cash Generation to Improve
Fitch expects Celpa to generate a more robust operational cash generation in the coming years. The company's credit metrics were weak for the rating category until September 2013. Equatorial, the new shareholder that acquired Celpa on November 2012, has been taking several actions to improve the company's operational and financial performance, which still need to mature. In the last twelve months ended on September 2013, EBITDA was negative at BRL331 million. Improvements achieved along 2013 took the EBITDA of the third quarter of 2013, excluding the non-recurring items and regulatory assets, to a positive BRL69 million. The agency expects an EBITDA of around BRL350 million and a net leverage of 9.0x in 2014, declining to 5.0x - 6.5x at the following three years.
Lengthened Debt Maturity Profile
Celpa's debt profile benefits from an extended maturity schedule, low financial cost and reduced foreign exchange risk as a result of the debt renegotiation under the bankruptcy protection process. At the end of September 2013, short-term debt of BRL673 million represented 24% of total debt of BRL2.8 billion, with 50% maturing beyond 2018. The company further improved its debt maturity profile in the last quarter of 2013 through a BRL375 million bank loan to refinance short-term debt and is expected to have no cash disbursement regarding its BRL150 million of short-term debt with Equatorial. Based on both actions, the pro forma short-term debts is reduced to BRL148 million.
The company presents a moderate liquidity level. The company reported cash and marketable securities of BRL376 million at the end of the third quarter of 2013, covering its short-term debt of BRL673 million by 0.6x. For the same period, the cash + FFO-to-short-term debt and cash + CFFO-to-short-term debt ratios were not applicable, since the company's FFO and CFFO were negative in the LTM ended on September 2013. On a pro forma basis, taking into account the short-term debt lengthening and excluding the intercompany loans, the short-term debt coverage increases to 2.5x.
Positive Shareholder Support
Equatorial has already injected BRL690 million in cash at Celpa as equity contribution since November 2012, which has benefited its liquidity position. In addition, the shareholder has capitalized BRL433 million of an intercompany loan and is guaranteeing the BRL375 million bank loan raised by Celpa in November 2013, with the proceeds used to refinance short-term debt. Celpa reported intercompany loans of BRL406 million with Equatorial at the end of September 2013, which is not expected to be paid and could be used to improve the company's capital structure. At the end of the third quarter of 2013, Equatorial reported robust liquidity position, with BRL616 million in cash and marketable securities position and no debt on an individual basis.
FCF to Remain Negative
Celpa's free cash flow (FCF) should remain negative at least in the next couple of years. The company's capital expenditures are expected to be high in 2014 in order to support the ambitious operational improvements expected for the coming years. In the LTM ended on Sept. 30, 2013, cash flow from operations (CFFO) and free cash flow (FCF) were negative at BRL642 million and 709 million, respectively. The cash flow performance from 2015 on will largely depend on the result of the tariff review process, which is expected to have a net positive effect to the company.
Challenging Loss Reduction
The reduction of energy losses is an important challenge for Celpa. The company's cash flow generation has been negatively impacted by energy losses above the maximum levels established by the regulatory agency and contemplated in its tariffs to end consumers. Actions to reduce losses started effectively in August 2013 within this new management team period, with recent positive results still limited. In the LTM ended September 2013, energy losses of 36.5% compares unfavorably with regulatory losses of 28.5%. On a quarterly basis, Celpa reduced its losses to 36.1% in the third quarter of 2013 from 37% in the fourth quarter of 2012. Positively, Equatorial has a good track record in loss reduction in its other subsidiary Companhia Energetica do Maranhao (Cemar - National Long-term rating 'AA-(bra)').
The ratings can benefit from improvements in Celpa's operational cash flow as expected, supported by losses reduction, combined with growth of energy volumes invoiced and positive results in cost control measures, which would result in more conservative credit metrics. The ratings would be negatively impacted in case of Celpa fails to improve its operating efficiency and cash flow generation, resulting in a leverage reduction below Fitch's expectations.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Metholodogy' (Aug. 5, 2013);
--'National Scale Ratings Criteria' (Oct. 30, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Effective from 8 August 2012 - 5 August 2013
National Scale Ratings Criteria