Fitch Affirms Tractebel's Ratings
OREANDA-NEWS. Fitch Ratings has affirmed Tractebel Energia S.A.'s (Tractebel) ratings as follows:
--Long-term Local Currency Issuer Default Rating (IDR) at 'BBB'; Outlook Stable;
--Long-term Foreign Currency IDR at 'BBB-'; Outlook Negative;
--Long-term National Scale Rating at 'AAA(bra)'; Outlook Stable.
KEY RATING DRIVERS
Tractebel's ratings reflect the expectation that the company will be able to sustain its solid consolidated credit profile even in a challenging macroeconomic scenario leading to lower energy consumption in 2016. Tractebel benefits from its solid financial profile with low leverage, robust liquidity position and manageable debt maturity schedule.
The ratings already incorporate that credit metrics should moderately deteriorate after the very likely transfer of the hydroelectric plant of Jirau (UHE Jirau) from its parent company Engie S.A (Engie; formerly GDF Suez S.A.). The percentage of this project to be acquired by Tractebel has been reduced to 40% from 60% as previously expected, as Engie has sold part of its stake to Mitsui Corp. The company's consolidated leverage, measured by net adjusted debt-to-EBITDA, should not exceed 2.5x, which is still consistent with its ratings. Fitch considers as positive that the acquisition may occur only in its operational phase in 2016-2017, eliminating execution and cost overruns risks.
The ratings are further supported by the company's prominent market position as the largest private electric energy generation company in Brazil. Tractebel benefits from its positive asset diversification, operational efficiency, and the existence of long-term power purchase agreements with its clients. To a lesser extent, the Fitch's analysis considered the credit strength and sector expertise of its parent company, Engie, as a relevant global power company. The analysis also factored in Tractebel's ambitious expansion plans and the risks associated with the construction phase of the greenfield projects. The ratings incorporate a moderate regulatory risk.
Robust Operational Cash Generation
Fitch expects EBITDA margin will recover to 50%-55% levels in 2016 due to a reduced thermal dispatch and lower impacts from hydrology issues since the company adhered to the new risk-sharing scheme proposed by the government in 2015. Tractebel has maintained sound financial performance even during a challenging operational scenario due to low hydrological levels. In 2015, net revenues and EBITDA amounted to BRL6.5 billion and BRL3.1 billion, respectively. EBITDA margin slightly increased to 48% relative to 44.7% recorded in 2014, but it is still far from the annual average of 61.3% achieved on the 2011-2013 period. The lower EBITDA margin also reflects the scenario of a more intensive thermoelectric dispatch of its plants and higher energy purchases for resale, activity that is less profitable.
Free Cash Flow to Turn Negative
Fitch expects a negative free cash flow (FCF) for Tractebel in the next three years as a result of higher capex. Nevertheless, the agency considers as positive the flexibility the company has demonstrated in reducing its dividends distribution as a way to preserve cash and credit metrics when necessary. Cash flow from operations (CFFO) has improved to BRL2.6 billion in 2015 and was sufficient to cover higher capex of BRL753 million and dividends of BRL704 million, delivering a robust FCF of BRL1.1 billion.
Solid Credit Metrics to Remain
Fitch believes that Tractebel will be able to keep credit metrics consistent with its ratings even with the challenging operational scenario and after the acquisition of UHE Jirau, with net adjusted debt-to-EBITDA ratio below 2.5x. Positively, this acquisition may occur in 2016-2017, after main project risks are mitigated and corporate guarantee to the project debt is no longer required. Fitch believes that the parent company may also provide some flexibility in transferring this asset in order to avoid liquidity pressure and to respect existing financial covenants for Tractebel's debt.
In 2015, Tractebel's consolidated gross leverage was stable at 1.4x in comparison with 2014, while its net debt-to-EBITDA ratio has reduced to 0.6x from 0.8x in 2014. The company's interest coverage, as measured by EBITDA to interest expenses, was stronger at 14.4x.
UHE Jirau is a large hydroelectric plant, with expected installed capacity of 3,750 megawatts (MW) and estimated investments that exceed BRL18 billion, mainly financed by Banco Nacional de Desenvolvimento Economico e Social (BNDES), which up to now has been on Engie's balance sheet.
Credit Profile Benefits from Long-Term PPA's
Tractebel is the largest private energy generation company in Brazil, with a total installed capacity of 7,044 MW, to be further increased to 9,305 MW after the acquisition of 40% of the 3,750 MW of UHE Jirau and the conclusion of its new projects already under construction phase. The company benefits from a successful energy commercialization strategy, the efficient monthly allocation of firm capacity and, to a lesser degree, the dilution of operational risks obtained through its diversified asset base. The potential acquisition of UHE Jirau and the ongoing investments in wind farms and the thermal plant reinforce this diversification. Tractebel's contracted energy position is high, above 85.8% of assured energy until 2018, being 96.6% in 2016 and 93.7% in 2017, with adequate tariffs.
Fitch's main assumptions, in accordance with the base case scenario for this issuer include:
--Assured energy reduction (GSF) for the hydroelectric plant of 5% in 2016 and 0% afterwards;
--Average spot price of BRL100/MWh in 2016;
--Capital expenditures of BRL5.3 billion from 2016 to 2019;
--Payout of 55% in 2016 and 100% in the following years.
Future developments that may individually or collectively lead to a negative rating action include: sizeable investments or acquisitions currently out of the company's business plan, that could lead to leverage consistently above 3.5x and/or cash and equivalents plus CFFO/short-term debt ratio below 1.5x. A downgrade on the sovereign IDR will also trigger another downgrade on Tractebel's FC IDR.
An upgrade of Tractebel's ratings is unlikely. Nevertheless, the FC IDR can be benefited in case of a sovereign positive rating action.
Tratebel's consolidated figures present a robust liquidity position. As of Dec. 31, 2015, cash and marketable securities amounted to BRL2.4 billion and were sufficient to fully cover its short-term maturities of BRL1.7 billion by 1.4x. Short-term debt was above historical levels as there was around BRL1.5 billion of bridge loans to be refinanced through long-term financings. Considering CFFO, the cash and marketable securities plus CFFO/short-term debt ratio was strong at 2.9x. The company's BRL4.2 billion total debt maturity schedule is adequately distributed along the years and is consistent with expected cash generation.