Fitch Downgrades C.A. La Electricidad de Caracas (EDC) IDRs to 'B+'; Outlook Stable

16.12.2008 | 23:25 Uhr

Fitch Downgrades C.A. La Electricidad de Caracas (EDC) IDRs to 'B+'; Outlook StableCHICAGONY-FITCH-RATINGS/EDC


Fitch Ratings has downgraded the foreign and local currency Issuer Default Ratings (IDRs) of C.A. La Electricidad de Caracas (EDC) to 'B+' from 'BB-'. This rating action follows Fitch's downgrade of the sovereign IDRs of the Bolivarian Republic of Venezuela to 'B+' from 'BB-' on Dec. 15. Fitch has also downgraded the USD650 million of senior unsecured notes due in 2018 and the outstanding portion of the USD260 million of notes due 2014 to 'B+' from 'BB-'. These notes have been assigned a Recovery Rating of 'RR4'. Fitch has concurrently affirmed EDC's national scale short- and long-term ratings at 'F1+(ven)' and 'AAA(ven)', respectively. EDC's Rating Outlook has been revised to Stable from Negative.

The credit rating of the Bolivarian Republic of Venezuela was downgraded yesterday due to the increased risk of a financial and economic crisis in the country given its tenuous macroeconomic policy framework. EDC's ratings reflect the company's strong credit linkage with its majority shareholders, Petroleos de Venezuela S.A. (PDVSA), as well as with the Bolivarian Republic of Venezuela, its ultimate shareholder. The company receives explicit support from both PDVSA and the government in the form of investment assistance, access to foreign currency, and government assistance with capital expenditure programs.

EDC was nationalized by the government during 2007. Since that time, the company has begun several investment projects aimed at increasing its generation capacity and improving its distribution and transmission assets. These investments, plus no tariff increases, should result in higher leverage. The outlook for tariff increases remains dismal due to the government's efforts to curb inflation.

During the last 12 months (LTM) ended Sept. 30, 2008, EDC reported deteriorating cash flow generation, as EBITDA declined to approximately USD193 million from USD256 million and USD421 million in 2007 and 2006, respectively. The company's EBITDA margin has also declined to 24% as of the LTM ended Sept. 30, 2008 from 33% and 47% for 2007 and 2006, respectively. As of Sept. 30, 2008, EDC had USD671 million of debt and USD640 million of cash. The company's debt is composed primarily of the USD650 million notes due in 2018 that were issued during 2008.

Going forward, the Venezuelan government is planning to spin off EDC from PDVSA. The government intends to establish a new state-owned entity that will consolidate all of the country's power assets. While the ultimate ownership structure is uncertain, Fitch expects EDC to continue being a state-owned entity and for the linkage between EDC's credit quality and that of the government to remain strong. Until this transition is complete, EDC is expected to pay dividends to PDVSA of approximately 90% to 100% of net income. In Fitch's view, these dividends, plus capital expenditures, should weaken the company's currently strong liquidity position and will lead to even higher levels of leverage.

EDC is a vertically integrated electricity company in Venezuela with operations in generation, transmission and distribution of electricity services to the metropolitan Caracas area. The company operates as a natural monopoly. As the sole provider of electricity in Caracas, the company is viewed to be a strategic asset of the Venezuelan government. PDVSA, the state-owned oil company, currently owns 93.62% of EDC.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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Fitch Downgrades C.A. La Electricidad de Caracas (EDC) IDRs to 'B+'; Outlook Stable

Fitch Downgrades C.A. La Electricidad de Caracas (EDC) IDRs to 'B+'; Outlook StableCHICAGONY-FITCH-RATINGS/EDC

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