Fitch Affirms ISA Capital do Brasil's 'BB' Ratings; Outlook Stable

CHICAGO--(Business Wire)--
Fitch Ratings has affirmed ISA Capital do Brasil S.A.'s (ISA Capital) foreign
and local currency Issuer Default Ratings (IDRs) at 'BB'. The rating action
applies to US$554 million in senior secured notes outstanding. The Rating
Outlook is Stable.

ISA Capital's ratings are based on the strong credit quality of Companhia de
Transmissao de Energia Eletrica Paulista (CTEEP), its sole revenue source and
only operating asset. CTEEP's strong credit quality is attributable to the
company's monopoly position, its stable and predictable operating cash flow and
its financially sound credit profile. The ratings also reflect the noteholders'
structural subordination to CTEEP's obligations, as well as the company's
concession renewal and refinancing risks.

Although CTEEP's credit quality is strong, ISA Capital's credit quality is
somewhat weaker given that ISA Capital only owns 37.5% of CTEEP total capital
and does not receive the full benefits of operating cash flow. Cash flow
distributions (dividends) from CTEEP to ISA Capital are stable and somewhat
predictable. ISA Capital's FFO Interest Coverage ratio of approximately 3.2
times (x) as of year end 2008 is considered adequate for the rating category.
The company received dividends of approximately BRL252 million and had interest
and hedge expenses of BRL92 and BRL130 million, respectively, during 2008.
During 2008, ISA Capital's liquidity position was weakened by a BRL217 million
payment to renegotiate its hedge instruments, although at a higher cost, with a
lower exchange rate.

Going forward, ISA Capital distributions received from CTEEP are expected to
range between BRL250 and BRL300 million per year and the company will increase
its cash reserves over the next two and half years in order to cover its 2012
amortization. Should ISA Capital allow CTEEP to reduce its dividend payments to
redirect funds for its aggressive expansion program, the company's credit
quality could be seriously compromised.

CTEEP's monopoly position stems from its exclusive right to provide electricity
transmission services through its three concessions expiring in 2015, 2031 and
2038, respectively. Furthermore, two CTEEP's concession are located in the state
of Sao Paulo, which accounts for one-third of Brazil's overall GDP, making it
one of the largest electricity consumers in the country, and the third one,
which will still be constructed, is in the Northeast of Brazil. CTEEP's strong
market position should further benefit the company when it participates in
future bids for new transmission lines in Brazil. Whether or not the regulator
renews the company's concession in 2015 is uncertain, however, the renewal of
this concession at lower permitted annual revenues has been assumed and
incorporated in the company's ratings.

CTEEP generates a stable and predictable cash flow, exhibiting the low business
risk profile of an electric transmission utility company. CTEEP's tariff-setting
mechanism is straightforward, receiving minor intervention from its regulator.
The company's tariffs are fixed and 86.4% of its permitted annual revenue will
not be revised by the regulator until 2015, being adjusted by inflation every
July. The other 13.6% are revised by the regulator every four years and
automatically adjusted by inflation every year. CTEEP's revenue is stable and
exempt from volumetric risk. The permitted annual revenue, which represented
approximately 99% of the company's total revenue in 2008, is based on the
electricity transmission assets available to users, instead of the transmitted
electricity volume.

CTEEP's credit metrics are supportive of its holding company's credit ratings.
The operating asset credit metrics are characterized by low leverage and strong
interest coverage. Since ISA Capital's acquisition, CTEEP's EBITDA margin has
improved, as expected, to approximately 84% in 2008 fiscal year from the
pre-acquisition 54% in the first half of 2006. CTEEP's current EBITDA margin is
more in line with its peers. Healthy operating cash flow has allowed the company
to finance its growth with internally generated cash and thus maintain low
leverage levels.

ISA Capital's ratings also reflect the strong covenant package that, among other
things, limits CTEEP's future level of indebtedness. CTEEP's expected leverage
and interest coverage should be well within the limits imposed by the covenants,
which require leverage of no more than 3.0x and interest coverage of at least
3.0x. In addition, under the covenant package, ISA Capital is not allowed to
declare or pay any dividends or make any distributions.

ISA Capital is a holding company created to participate in the privatization of
CTEEP. The company was incorporated with a USD378 million equity contribution by
Interconexion Electrica S.A. E.S.P. (ISA) and a US$609 million intercompany loan
from ISA. CTEEP, ISA Capital's sole source of revenue and only operating asset,
is an electricity transmission company located in the state of Sao Paulo. It is
the largest company of its type in Sao Paulo and the largest privately owned
transmission company in the country. The company holds three concessions for the
transmission of electricity in the state of Sao Paulo, the first one expiring in
2015 and the second one in 2031. The third concession contract, expiring in
2038, was signed on March 17, 2008 and comprises the construction, operating and
maintenance of two transmission lines in the Northeast of Brazil that CTEEP won
in a November 2007 auction. CTEEP's bulk revenue is generated by the contract
that expires in 2015 and can be renewed for an additional 20 years at the
regulator's discretion.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, www.fitchratings.com. 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.

Fitch Ratings
Lucas Aristizabal, 312-368-3260 (Chicago)
Pagsi Jimenez, 11-4504-2600 (Sao Paulo)
Brian Bertsch, 212-908-0549
(Media Relations, New York)
brian.bertsch@fitchratings.com
Cindy Stoller, 212-908-0526
(Media Relations, New York)
cindy.stoller@fitchratings.com

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