Fitch Ratings has affirmed the Foreign Currency Issuer Default Rating
(FC IDR) of AES Andres Dominicana SPV (AES Dominicana) and its USD284
million bond due 2020 at 'B+'. The 'RR4' Recovery Rating assigned to the
2020 notes reflects the recovery rating cap of companies domiciled in
the Dominican Republic. Additionally, Fitch has assigned an FC IDR of
'B+' to AES Andres B.V (AES Andres), and affirmed its National Scale
rating at 'A+(dom)'. The Rating Outlook on both IDRs is Stable.
KEY RATING DRIVERS
AES Dominicana and AES Andres's ratings reflect the Dominican Republic's
(DR) electricity sector's high dependency on transfers from the central
government to service their financial obligations, a condition that
links the credit quality of the distribution companies and generation
companies to that of the sovereign. Low collections from end-users, high
electricity losses and subsidies have undermined distribution companies'
cash generation capacity, exacerbating generation companies' dependence
on public funds to cover the gap produced by insufficient payments
received from distribution companies. The ratings also consider the
companies' solid asset portfolio, strong balance sheet, and
well-structured purchase power agreements (PPAs).
AES Dominicana SPV represents the combined operating assets of AES
Andres and Dominican Power Partners (DPP), which jointly guarantee AES
Dominicana's USD166 million notes due 2020. These notes are attached to
Itabo Dominicana SPV's USD116 million notes, also rated 'B+'. DPP
currently contributes only about 10% of combined AES Dominicana EBITDA,
further tying AES Dominicana's operational rating drivers to Andres. In
2017, DPP is expected to complete a significant capacity expansion in
the form of conversion to a combined-cycle plant, substantially
increasing its proportional revenue and EBITDA contribution to the
combined results of AES Dominicana.
Sector's Dependence on Government Transfers
High energy distribution losses (above 30% in last five years), low
level of collections and important subsidies for end-users have created
a strong dependence on government transfers. This dependence has been
exacerbated by the country's exposure to fluctuations in fossil-fuel
prices and energy demand growth (3.8% CAGR in 2009-2014). The regular
delays in government transfers pressure working capital needs of
generators and add volatility to their cash flows. This situation
increases the risk of the sector, especially at a time of rising fiscal
vulnerabilities affecting the Central Government's finances.
High-Quality Asset Base
AES Andres has the DR's most efficient power plant, and ranks among the
lowest-cost electricity generators in the country. Andres'
combined-cycle plant burns natural gas and is expected to be fully
dispatched as a base-load unit as long as the liquefied natural gas
(LNG) price is not more than 15% higher than the price of imported fuel
oil No. 6. Moreover, AES Andres operates the country's sole LNG port,
offering regasification, storage, and transportation infrastructure. In
the medium term, the company is also looking to expand its
transportation network and processing capacity for its LNG operations.
By 2017, the aggregate capacity of AES Dominicana will increase by
approximately 114MW as result of the development of a combined cycle
facility in DPP's power plant. The construction of this project would
start by the end of the year.
Strong Credit Metrics
AES Andres presents strong credit metrics for the rating category. At
June 2015, total debt-to-LTM EBITDA was 1.1x, while total net
debt-to-EBITDA stood at 0.7x as of 2Q15. Major maintenance in the first
half of 2015 (1H15), and lower gas prices have pressured LTM EBITDA down
to USD159 million in 2Q15 from USD187 million at year-end 2014. With the
completion of major maintenance, Fitch expects moderate recovery in
EBITDA at the Andres level in 2016.
For AES Dominicana, total debt-to-LTM EBITDA was 1.3x as of 2Q15, while
total net debt-to-EBITDA stood at 0.7x, versus 0.7x leverage and 0.2x
net leverage for the same period last year. The weaker leverage is
primarily due to a USD260 million credit facility that is being
gradually drawn upon for capex at DPP. The company expects to have fully
drawn down the facility by the end of 2016. Combined results at AES
Dominicana will likely remain low in 2016 reflecting downtimes for the
closing of DPP's cycle and the effect of lower gas prices on PPA
Cash Flow Volatility Persists
The sector's collections deficit and delays in government transfers
continue to pressure company cash flow. For the LTM June 2015, AES
Dominicana generated USD136 million of cash flow from operations (CFFO),
above the USD66 million posted in the same period last year. This
increase is mainly explained by inflows from accounts receivables and
inventory reduction. Weaker EBITDA of USD172 million (versus USD226
million last year) primarily reflects lower spot sale revenues at AES
Andres and DPP, as well as longer than expected maintenance downtime at
A negative rating action to AES Andres and/or AES Dominicana would
follow if the DR's sovereign ratings are downgraded, if there is
sustained deterioration in the reliability of government transfers, and
financial performance deteriorates to the point of increasing the
combined Andres/DPP ratio of debt-to-EBITDA to 4.5x for a sustained
A positive rating action could follow if the DR's sovereign ratings are
upgraded or if the electricity sector achieves financial sustainability
through proper policy implementation.
LIQUIDITY AND DEBT STRUCTURE
Higher Leverage in the Medium Term
As of June 30, 2015, AES Dominicana had cash and marketable security
holdings of USD109 million. Fitch is expecting gross leverage to peak
briefly at over 3.5x during the next 18 months, as project-related debt
is fully recognized. Incremental EBITDA related to these projects should
bring leverage quickly back down to the 2.5x level thereafter. Fitch
further expects AES Dominicana to maintain or extend its healthy
--Major maintenance in 1Q15 at AES Andres
--Downtime of 45 days at DPP in 2016 as it converts to combined cycle
with around 100MW of additional capacity effective January 2017
--Lower natural gas prices and revenues related to NG sales in the near
--Lower energy prices tied to NG price effects on PPA indexation
--Higher volume sales of NG in the medium term.
FULL LIST OF RATING ACTIONS
AES Andres B.V.
--Foreign Currency Issuer Default Ratings (IDRs) assigned at 'B+';
--National Scale rating affirmed at 'A+(dom)'.
The Rating Outlook is Stable
AES Andres Dominicana SPV
--Foreign currency Issuer Default Ratings (IDRs) affirmed at 'B+'
--Senior unsecured notes rating affirmed at 'B+/RR4'.
The Rating Outlook is Stable
Date of Relevant Rating Committee: Sep. 18, 2015.
Additional information is available on www.fitchratings.com
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 17 Aug 2015)
Country-Specific Treatment of Recovery Ratings (pub. 28 Jun 2013)
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