Fitch Ratings has assigned first time Long-Term Foreign and Local
Currency Issuer Default Ratings (IDRs) of 'B' and 'BB-', respectively,
to Albanesi S.A. (Albanesi). The Rating Outlook is Stable.
Fitch has simultaneously assigned an expected rating of 'B+(EXP)/RR3' to
the up to USD250 million proposed senior unsecured notes issued by
Central Termica Roca (CTR), Generacion Mediterranea SA (GEMSA) and
Generacion Frias(GFSA). GFSA and GEMSA are subsidiaries of Albanesi S.A.
The notes are guaranteed by Albanesi S.A. Each of the issuers and
Albanesi S.A. will be jointly and severally liable for any payment
obligations under the notes.
The company expects to use the proceeds from the issuance to refinance
existing debt at its subsidiaries, funding capital expenditures and for
general corporate purposes.
KEY RATING DRIVERS
Albanesi's ratings reflect the industry's improving regulatory risk;
counterparty risk to Compania Administradora de Mercado Mayorista
Electrico S.A. (CAMMESA) as main offtaker; the company's sound metrics
supported by its relatively stable and predictable cashflow generation;
and Albanesi's debt partial structural subordination to OpCo debt.
Finally, the company's ratings also reflect the macro-economic
environment, including high inflation and steep currency devaluation and
implicit support and synergies with natural gas trader sister company,
Rafael G. Albanesi (RGA).
Albanesi's ratings are constrained by the 'B' country ceiling of the
Republic of Argentina. Fitch has assigned a country ceiling of 'B' to
the Republic of Argentina, which limits the foreign currency rating of
most Argentine corporates. Country ceilings are designed to reflect the
risks associated with sovereigns placing restrictions upon private
sector corporates, which may prevent them from converting local currency
to any foreign currency under a stress scenario, and/or may not allow
the transfer of foreign currency abroad to service foreign currency debt
obligations. Since taking power in December 2015, the Mauricio Macri
administration removed FX controls introduced in 2011 and increased the
flexibility of the Argentine peso, which should contribute towards
improving the capacity of the economy to absorb external shocks and
relieve pressure on international reserves.
Factors such as the high capital investment needs in the sector to
reduce the energy deficit in the country, coupled with the company's
conservative financial structure allows the company's local currency IDR
to be above the sovereign's local currency IDR by two notches, in line
with Fitch's criteria for rating non-financial corporates above the
country ceiling.
The rating of the notes considers the combined operating assets of
Albanesi and CTR which jointly and severally guarantee the proposed
notes due 2023. Fitch expects to assign an 'RR3' Recovery Rating to
Albanesi's proposed issuance, which reflects good recovery prospects in
the event of default given the company's solid balance sheet and cash
flow generation. Fitch believes that the company's default, should it
occur, would be most likely driven by transfer and convertibility
restrictions imposed upon the payment of foreign debt, not a material
deterioration of the company's business or financial profile.
Improving Regulatory Risk:
Fitch believes the recent resolutions implemented by the new government
reflect a trend of less government interference and discretion in the
power generation sector. Albanesi operates in a highly strategic sector
in which the government has historically had a role as the price/tariff
regulator and had full control over the subsidies for industry players.
Since 2013, the Secretariat of Energy introduced material changes to the
structure and operation of the wholesale electricity market (WEM). Since
2013, the tariffs have almost doubled. Additionally, the Ministry of
Mining and Energy, under Resolution 22/2016 adjusted the spot price
tariffs for energy sales under the Energia Base framework.
Counterparty Exposure:
Albanesi depends on payments from CAMMESA, which can be volatile given
that the agency depends on the national government for funds to make
payments. Electric companies in Argentina are not only exposed to delays
in the payment of CAMMESA, but also to risks in fuel supply, as the
government's agency centralizes the country's fuel imports. During the
past couple of years, CAMMESA's increasing obligations relative to its
revenues significantly increased discretionary payments to suppliers.
The new resolutions intend to reduce CAMMESA's deficit to support the
industry sustainability in order to balance the supply/demand dynamics.
The company's exposure to a shortage in fuel is partially mitigated by
the role of sister company RGA as the main natural gas trader of the
country, supplying the gas if needed to the companies within the
Albanesi group.
Sound Credit Metrics:
Albanesi's cash flow generation is relatively stable and predictable. As
of December 2015, 65% of the company's EBITDA was related to long term
take or pay contracts with CAMMESA denominated in U.S. dollars under the
Resolution 220/07 regulatory framework. Additionally, approximately 84%
of the revenues of Albanesi and CTR were denominated in U.S. dollars.
Albanesi is a HoldCo concentrating all the power generation assets,
except for CTR. The Albanesi group, including CTR, operates eight power
plants located in multiple provinces of Argentina, benefitting from
geographical diversification and good access to fuel and the Sistema
Argentino de Interconexion (SADI).
As of December 2015, Albanesi's total debt/EBITDA ratio, including debt
with CAMMESA, stood at 2.0x (significantly improving from the 4.2x
observed in 2011), while net of debt with CAMMESA stood at 1.7x. Fitch
expects leverage to peak at 4.6x in USD (5.4x in ARS) after the issuance
of the notes and to decrease below 3.0x in 2018 when the additional
projects start operations.
Gross leverage for the co-guarantors (including CTR) as of December 2015
was 2.31x in USD (3.25x in ARS) and it is expected to be below 3.0x by
2018/2019 once the additional capacity is fully operational.
Partial Structural Subordination:
The potential retention of cash after debt service at the OpCo's level
makes cash flow to the HoldCo less stable and less predictable than the
cash flows from operations (CFFO) of the subsidiaries. The repayment of
Albanesi's debt relies on the dividends being paid by the OpCos, mainly
GEMSA. As of December 2015, GEMSA paid approximately ARS50 million in
dividends. Fitch believes that with the proceeds of the notes, a
significant portion of the existing debt will be repaid reducing the
structural subordination.
KEY ASSUMPTIONS
--Installed capacity for Albanesi S.A. and the guarantors of 812MW and
942MW respectively for 2016, increasing by 350MW for Albanesi S.A and by
410MW for the Guarantors compared with 2016. Main increased in installed
capacity due to Ezeiza (150MW), Independencia 1 & 2 (100MW), Rio Negro
CC (60MW) and La Rioja (50MW).
--Additional 250 MW of installed capacity expected to be contracted
under Res-21/2016 (which is similar to Res-220). The remaining
contracted under Res-220.
--Approximately 60% of the installed capacity contracted under Res-220
in 2016 increasing to 72% by 2019 (considering the co-issuers).
--Base energy prices will increase by 30% in 2017, 25% in 2018 and 20%
in 2019.
--Res 220 prices and Energia plus prices remaining flat.
--Peak capex of USD150 million-USD220 million per year for 2016-2017,
reducing to an average USD35 million per year for the following years.
--No additional revenues associated to Solalban are included.
RATING SENSITIVITIES
Albanesi's ratings could be negatively affected by a combination of the
following:
--A change in the company's contractual mix and/or deterioration on the
regulatory framework that could affect the company's ability to generate
revenues under the Energia plus and Res 220/07 frameworks.
--A significant deterioration of credit metrics and/or significant
payment delays from CAMMESA.
Finally, a downgrade of Argentina's ratings would result in a downgrade
of Albanesi's ratings, given that the company's ratings are constrained
by the sovereign's credit quality.
An upgrade to the ratings of Argentina could result in a positive rating
action.
LIQUIDITY
As of year-end 2015, total cash and equivalents amounted to
approximately USD2.4 million compared with approximately USD45 million
of short-term debt due during 2016. This is a common practice among
Argentine companies. The company's successful record of accessing the
local markets and the available credit lines with local banks should
mitigate the liquidity risk exposure during 2016.
The proceeds from the issuance of the bond will be used to refinance
most of the company's financial debt, improving liquidity and extending
the company's maturity profile.
FULL LIST OF RATING ACTIONS
Fitch has assigned the following ratings:
Albanesi S.A.
--Long-Term Foreign Currency Issuer Default Rating (IDR) 'B', Stable
Outlook;
--Long-Term Local Currency IDR 'BB-', Stable Outlook;
--$250 million senior unsecured notes due 2023 issued by CT Roca, GEMSA
and GFSA and co-guaranteed by Albanesi SA and CTR 'B+(EXP)'/'RR3'.
Date of Relevant Rating Committee: July 8, 2016.
Additional information is available on www.fitchratings.com.
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1008723
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1008723
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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