OREANDA-NEWS. Fitch Ratings has downgraded Enersis Americas S.A.'s (Enersis) Long-term Foreign and Local currency Issuer Default Ratings (IDRs) to 'BBB' from 'BBB+' and Long-term national scale rating to 'AA-(cl)' from 'AA(cl)'. In addition, Fitch has affirmed Enersis' short-term national scale rating at 'N1+'. These rating actions affect the company's outstanding Yankee bonds and domestic bonds.

The Rating Outlook is Stable.

KEY RATING DRIVERS

Enersis' investment grade ratings reflect its solid business platform with a strong degree of business and geographic diversification, and solid financial/operational metrics. Under the company's current corporate structure, geographic diversification through Latin America provides a natural hedge to different regulations, weather conditions and economic situations. Given the spinoff of the stable Chilean operations, the ratings downgrade reflects the greater cash flow volatility of the new entity, as post-spinoff the more volatile Brazilian market forms a greater part of the company's cash flow mix. The Stable Outlook is driven by Enersis' adequate liquidity profile and credit metrics, and the expectation that a balanced mix between generation and distributions businesses will be maintained.

Credit risks associated with the company include pressures from the shareholder Enel to promote any extraordinary dividends or increased capex spending, 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 the company's dependence on dividend payments from its subsidiaries to repay its own debt and incorporate the seasonal and regional cash flow volatility.

Corporate Reorganization Reaches Final Stages: The corporate restructuring announced in 1H15 resulted in Enersis S.A. becoming Enersis Americas S.A. On Feb. 1, 2016, Endesa spun off its non-Chile operations (Colombia, Peru, Argentina, Brazil operations) into a new entity called Endesa Americas S.A. The Endesa Americas S.A. assets are now 60% owned by Enersis Americas S.A. For its part, Enersis Americas S.A. separated its Chilean distribution business, Chilectra Chile, which is now under the Enersis Chile S.A. corporate umbrella.

The rated entity, Enersis Americas S.A., contains all the group's non-Chile generation and distribution assets and the Enersis S.A. (predecessor company) bonds and corporate debt remains in this entity. Enersis Chile S.A. is 60.6% owned by Enel.

Cash Flow Mix by Country Changes: The corporate restructuring, which separated the Chilean and International businesses under the Enersis Americas S.A. and Enersis Chile S.A. umbrellas respectively, was effective Feb. 1, 2016. Removing the Chilean assets from the cash flow generation mix, in Fitch's view increases the volatility on the company's cash flow generation. Especially, given Enersis Americas now faces greater exposure to Brazil's (Fitch IDR: BB+/Negative Outlook) economic downturn, which has led to lower electricity demand and higher energy losses.

In 2015, Enersis reported a 58% year-over-year decline in operating income in its Brazilian distribution business. The Brazilian distribution business, in particular Ampla, have been hurt by higher energy purchase costs due to lower hydrological conditions. Negative exchange rate effects and lower overall energy demand have also put negative pressure on the company's Brazilian operations. In 2014, the company's consolidated EBITDA streams were well diversified amongst Colombia (40%), Brazil (24%), Chile (22%), Peru (13%), and Argentina (1%). Pro forma for the corporate reorganization, the same EBITDA generation mix would be: Colombia (48%), Brazil (32%), Peru (19%), and Argentina (1%). In other words, the company's exposure to non-investment grade sovereigns (Argentina, IDR: RD) would increase from 25% to 33%.

Manageable Investment Program: The company disclosed it will be spending capex of approximately USD4.5 billion on a consolidated basis during the 2016 - 2019 period. No further details have been provided about the timing and type of investments, and Fitch will monitor the impact of these investments in Enersis Americas' credit profile, as the details are announced. Overall, Fitch believes the company's investment plan should not require additional significant indebtedness given the company's solid free cash flow generation.

RATING SENSITIVITIES

Future developments that could, individually or collectively, lead to negative rating actions include:

--A change in Enersis' 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 to EBITDA ratio greater than 3.5x and EBITDA to interest coverage below 4x);
--The deterioration of the macroeconomic conditions, and respective sovereign ratings, in the company's key markets.

A material improvement in credit metrics that could be sustained over time, reduction in debt levels and in pressure from shareholders to distribute dividends could result in a positive rating action. An improvement in the mix of cash flow generation towards investment grade sovereign markets would be viewed positively. Once the company establishes a long-term history of sustained gross debt to adjusted EBITDA ratios under 2.5x level, the company's credit ratings could be upgraded.

LIQUIDITY AND DEBT STRUCTURE

Strong Leverage Metrics: On a pro forma basis, Enersis Americas maintains a strong capital structure with gross leverage defined as debt-to-adjusted EBITDA of 1.5x, which is slightly higher than the leverage metrics in the same period for the predecessor company, Enersis S.A., that registered leverage of 1.4x. Adjusted Pro forma EBITDA for 2015 was USD2.4 billion, versus USD3.4 billion generated in the predecessor company. Given continued pressure on the company's Brazilian operations, that make-up one-third of consolidated EBITDA, Fitch does not expect meaningful EBITDA growth in the short-to-medium term.

Solid Liquidity Continues: On a pro forma basis, the company has nearly USD1.7 billion of cash and equivalents as of December 2015, and has available committed lines of credit totaling USD245 million. This compares favorably with short-term financial debt of USD971 million for the same period.

KEY ASSUMPTIONS

--Capex for the 2016 - 2019 period totals approximately USD4.5 billion;
--EBITDA remains in the USD2.5 billion/year range in the short-to medium-term;
--Gross leverage ratio at 2.0x or below between 2016 - 2019.

FULL LIST OF RATING ACTIONS

Fitch has taken the following rating actions:

Enersis Americas S.A.
--Long-term Foreign and local currency Issuer Default Ratings (IDRs) downgraded to 'BBB' from 'BBB+';
--International senior unsecured bond ratings downgraded to 'BBB' from 'BBB+';
--Long-term national scale rating downgraded to 'AA-(cl)' from 'AA(cl)';
--National senior unsecured bond ratings downgraded to 'AA-(cl)' from 'AA(cl)';
--Short-term national scale rating affirmed at 'AA-/N1+';
--National short-term debt rating affirmed at 'AA-/N1+'.

The Rating Outlook is Stable.