Interconexion Electrica S.A. E.S.P. 'BBB-' Rating Affirmed, Outlook Remains Stable

Stocks and Financial Services Press Releases Wednesday July 3, 2013 08:39
NEW YORK--3 Jul--Standard & Poor's
  • We are affirming our 'BBB-' corporate credit rating on Colombia-based linear infrastructure operator Interconexion Electrica.
  • We expect that the company will use the compensations for the early termination of the Brazilian concession to repay debt as it becomes due.
  • The stable outlook reflects our expectation that the company's financial ratios will improve in 2014-2015 as overall debt drops and revenue continues to recover from the 2013 drop.
NEW YORK (Standard & Poor's) July 2, 2013--Standard & Poor's Ratings Services affirmed its 'BBB-' rating on Interconexion Electrica S.A. E.S.P. (ISA). The outlook remains stable.

The ratings on ISA reflect its "satisfactory" business risk profile, which benefits from a stable and generally predictable business environment in the countries in which it operates. In addition, ISA holds a strong market position by controlling a majority of Colombia's and Peru's electricity transmission grid, and it has continued to pursue further business diversification, which support its business risk profile and profitability. The stand-alone credit profile also reflects ISA's "intermediate" financial risk profile.

The ratings also incorporate our assessment that there is a "low" likelihood that the Colombian government would provide timely support to ISA, if needed, because the company generates significant cash flow and debt outside of Colombia. As its primary shareholder, the Colombian government holds a 51.4% stake in ISA. However, based on our government-related entity criteria, we also assess ISA to have a limited link to the government, given the independence of its management and corporate practices.

In its aim to cut electricity prices for end users, the Brazilian government approved provisional measure 579 (MP 579) and related regulations in December 2012, which offered electric utilities with concessions coming due between 2015 and 2017 the option for an early renewal for up to 30 years in exchange for a compensation payment and a significant reduction in prices and tariffs. The objective was to finance about 65% of the price reduction to end users through lower concession prices and tariffs, while the remaining 35% would come from the elimination or reduction of certain sector charges and taxes.

The companies that accepted the proposal received a new tariff from January 2013 onwards that aims to cover, among other things, operations and maintenance expenses, charges and taxes, and a compensation payment from the government equivalent to the unamortized value of the concession assets. The Brazilian government will pay part of the unamortized value of the concession assets upfront and finance the remainder for up to 30 years.

ISA is the controlling shareholder of Brazil-based CTEEP-Companhia de Transmissao de Energia Eletrica Paulista (CTEEP), which accepted the government's proposal. Our ratings on ISA incorporate the expectation that CTEEP will continue to use the proceeds from the early payment of the unamortized value of the assets to pay down its existing debt. CTEEP has already prepaid R$437.2 million with the received proceeds.

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