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December 18, 2007 |
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AES CHIVOR: Improved Debt Ratio Cues S&P To Lift Ratings to BB Standard & Poor's Ratings Services raised the ratings on AES Chivor & CIA S.C.A. E.S.P. to 'BB' from 'BB-' mainly due to the company's improved financial risk profile, partly evidenced by better debt-service coverage ratios. The outlook is positive. The rating on the Colombia-based power generator reflects the challenges of operating in the highly competitive and largely hydro-based Colombian power system, its exposure to weather conditions, and the company's volatile cash flow generation. These weaknesses are partly offset by the company's low variable generation cost, relatively large dam and favorable hydrology in its region, its sizable portfolio of short- and medium-term power sales contracts, and good debt service coverage ratios. AES Chivor's cash flow generation has benefited in the last years from a gradual increase of power prices in Colombia, to about US$40 per MWh during the first nine months of 2007 from about US$25 per MWh in 2003. This was mainly due to growing demand for power (4%-5% per year) and low generation capacity additions. The combination of the company's good operating performance and lower debt levels was reflected in improved funds from operations to total debt of 34.3% and FFO interest coverage 4.4 in the 12 months ended Sept. 30, 2007, compared with 26.9% and 3.7 in 2006, and 22.8% and 3.1, respectively, in 2005. These ratios should remain at least at similar levels in 2008 and 2009 due to debt amortization and expected favorable power prices,in Colombia. An upgrade would be based on lower volatility of AES Chivor's cash flow generation and a further improvement of its financial flexibility, which would require a reduction of the company's high refinancing risk in 2014. However, a significant deterioration of its debt service coverage ratios resulting from a strong reduction of power prices in Colombia could result in a negative rating action. AES Chivor is the fourth-largest power generator in Colombia through its ownership of a 1,000 MW hydropower plant that represents about 8% of the country's total installed capacity. Chivor was privatized and acquired by Chile's largest thermal generator, AES Gener S.A. in December 1996. |
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