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Fitch Ratings
The rating action applies to US$300 million of Political Risk Protected (PRP) bond issuance due Feb. 1, 2016. Concurrently, Fitch has downgraded Compania de Alumbrado Electrico de San Salvador, S.A. de C.V. (CAESS) and Empresa Electrica del Oriente, S.A. de C.V. (EEO) national scale ratings. The Rating Outlook for all ratings is Stable. The rating actions are as follow;
--AES El Salvador foreign currency and local currency IDR downgraded to 'BB' from 'BB+';
--AES El Salvador's USD300 million PRI notes due 2016 downgraded to 'BB' from 'BB+';
--AES El Salvador national scale issuance rating downgraded to 'AA-(pan)' from 'AA(pan)';
--CAESS national scale rating downgraded to 'A+(slv)' from 'AA-(slv)';
--EEO national scale rating downgraded to 'A+(slv)' from 'AA-(slv)'.
The rating action reflects AES El Salvador's weak credit metrics for the rating category, as well as continued sovereign risk exposure through subsidies and intervention. AES El Salvador's ratings also reflect the weakening macroeconomic conditions in El Salvador. The El Salvadorian government has again implemented subsidies to maintain low electricity tariffs for end users in addition to existing subsidies for consumption below 99KWh. These subsidies amounted to approximately USD80 million for the sector and approximately USD66 million for the company during 2009. The government estimates that the incremental subsidies will be approximately USD16 million to USD18 million over the next six months, and be used for consumption below 300 KWh. This could create working capital needs for distribution companies depending on the timely disbursement of subsidies from the government to distribution companies. Should AES El Salvador and its subsidiaries be forced to issue additional debt to fund its working capital requirements, while it continues distributing dividends, its credit quality could deteriorate further.
The rating action also reflects AES El Salvador's deteriorated and below expectation credit metrics. As of Dec. 31, 2009, the company's EBITDA continued to be weak, at USD60 million with total debt of USD300 million, which resulted in a high leverage ratio of 5.0 times (x). AES El Salvador's interest coverage continues to be adequate for the rating category at approximately 2.7x. AES El Salvador's liquidity is supported by its cash on hand, which as of year end 2009 was approximately USD31 million and an USD38.5 million short-term bank credit facility to buy electricity from generators. Going forward, the company's credit metrics could deteriorate if the company issues additional debt to finance working capital needs due to subsidies and/or high energy cost and if it receives unfavorable tariff resets.
Source: Fitch Ratings Centroamerica
More on this topic
January 2011
Standard & Poor's downgraded the country's rating to "BB-" from "BB" with an overall picture of "stable”.
Reuters reports part of the S&P statement "The downgrade reflects Standard & Poor's view that political climate is deteriorating due to the growing division between president Mauricio Funes and the FMLN."
June 2008
Fitch Ratings has lowered the investment rating of the electical distribution company AES El Salvador from BBB- to BB+.
The ratings company said it downgraded the company because changes in the regulatory system have negatively affected its EBITDA and its profitability.
EBITDA refers to the relationship between debt and cash flow of a company.
March 2011
Moody's downgraded the rating to "Ba2" from "Ba1", citing a continued deterioration of the country's financial condition.
In a statement the rating agency stated, "The metrics for sustainability of government debt (including debt to income ratio) are not consistent with a grade of 'Ba1' in light of the limited prospects for growth the country has," Yahoo News published.
November 2009
Fitch downgraded Mexico's Issuer Default Rating (IDR) from 'BBB+' to 'BBB' in foreign currency and from 'A-' to 'BBB+' in domestic currency.
Both ratings have a 'Stable' outlook. Additionally, the country's ceiling was reduced to 'A-' from 'A'.
Fitch downgraded Mexico's ratings because the country's fiscal situation has gotten worse with the financial crisis and a reduction in Mexican oil production.
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