Moody's assigned to Empresa de Transmisión Eléctrica de Panamá a Baa1 issuer rating, arguing that it reflects key credit strengths and is the only electricity transmission company in the country.
Tuesday, April 2, 2019
Gilberto Ferrari, general manager of Empresa de Transmisión Eléctrica (Etesa) explained to Panamaamerica.com.pa that "... This qualification is one of the most important milestones in the history of the company and the energy sector of our country. Etesa has been positioned as the second best credit risk in Panama, on a global scale."
"... Etesa has become one of the few Panamanian companies with an international investment grade rating, which will allow it to access new and better sources of financing for its short-, medium- and long-term investment projects," the article adds.
From Moody's report:
New York, April 01, 2019 -- Moody's Investors Service ("Moody's") today assigned a first-time Baa1 issuer rating to Empresa de Transmision Electrica, S.A. ("ETESA" or "Issuer"). The outlook is stable.
Assignments:
.Issuer: Empresa de Transmision Electrica, S.A.
.... Baseline Credit Assessment, Assigned baa2
.... Issuer Rating, Assigned Baa1
Outlook Actions:
..Issuer: Empresa de Transmision Electrica, S.A
....Outlook, Assigned Stable
RATINGS RATIONALE
ETESA's Baa1 rating assigned reflects key credit strengths, including its solid market position as the sole transmission company in Panama with exclusive rights to operate the network. In addition, the company provides an essential and regulated service, with tariffs sized to cover operating and investment costs, and generating a highly visible stream of cash flows.
Moody's recognizes that ETESA is projected to exhibit a relatively high leverage, particularly over the next few years mainly due to the capital investment program. Under Moody's base case, ETESA's cash interest coverage (Funds From Operations (FFO) + interests / interests) and FFO / net debt are projected to average 2.9x and 10% respectively, over the first three years of our projection. A key assumption embedded in our rating is that the planned 4th transmission line, with an estimated EPC cost of $550 million, will be built under a Build, Operate, Transfer scheme, without recourse to ETESA and without any material capital requirements from the company.
Furthermore, ETESA operates under a concession contract with a finite life, although renewal risk is materially mitigated by its linkages with the government and since under the current law is the only entity permitted to own, operate and develop the country's transmission network.
The Baa1 issuer rating assigned to ETESA reflects the application of Moody's joint default analysis (JDA) framework for government related issuers (GRIs), which takes into account the following four input factors: i) a baseline credit assessment (BCA) of baa2 as a measure of ETESA's standalone creditworthiness, ii) the Baa1 rating of the Government of Panama as ETESA's support provider, as well as iii) our estimates of High implied government support in the case of financial distress and iv) a Very High default dependence between ETESA and the Panamanian government. These assumptions are supported by the company's strong linkages with the Government of Panama, which owns 100% of ETESA. These also reflect the strategic and essential nature of the services provided, the government control and direction of the company, and precedents of financial support via tariffs or direct capital contributions, which under our framework ETESA's rating translates into a one-notch rating uplift from the BCA of baa2.
The outlook is stable, reflecting the regulated business model that is expected to generate stable and visible cash flows. The stable outlook is also in line with the rating outlook of the Government of Panama, the support provider.
WHAT COULD CHANGE THE RATING UP/DOWN
Given that the Baa1 rating is in line with the sovereign rating of Panama, an upgrade of the rating is unlikely in the near term. Upward pressure on ETESA's rating would require that the company strengthens on a standalone basis and, importantly, that the sovereign rating of Panama is upgraded.
The rating would come under downward pressure if there is a downgrade in the sovereign rating or if we change our view on implied government support. The BCA and rating could also be downgraded if ETESA's key financial metrics deteriorate as a result of higher leverage or lower cash flow generation. Specifically, if cash interest coverage and FFO/Debt were expected to fall below 2.8x and 9.0%, respectively, on a sustained basis.
ETESA is Panama's electricity transmission company, wholly-owned by the Government of Panama (Baa1 stable). ETESA was created in 1999 with exclusive rights on the transmission, dispatch, control and demand planning for electricity generation in Panamá. ETESA owns the national transmission system which consists of three trunk transmission lines, adding up to close to 3,000 km.
The methodologies used in these ratings were Regulated Electric and Gas Networks published in March 2017, and Government-Related Issuers published in June 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
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