Fitch Places Panama's Electricity Generation Companies on Rating Watch Negative

CHICAGO--(Business Wire)--
Fitch Ratings has placed the ratings of AES Panama S.A. and Enel Fortuna, S.A.
on Rating Watch Negative following the recently announced Presidential
Resolution and initiatives that will lower Panama's hydroelectric generation
companies' profitability.

The Negative Watch reflects the increasing consumer-oriented government
initiatives that aim to lower electricity prices for end-users at the expense of
hydroelectric generators. These measures, if implemented by congress and the
regulator, would materially increase leverage for both hydroelectric generation
companies.

Fitch has placed the following ratings on Rating Watch Negative:

AES Panama

--Local and Foreign Currency Issuer Default Rating (IDR) 'BBB-';

--USD300 million senior unsecured notes 'BBB-'.

Enel Fortuna

--Local and Foreign Currency IDR 'BBB-';

--USD170 million senior unsecured notes 'BBB-'.

Early this week the Panamanian president issued a Presidential Resolution
announcing several initiatives to lower electricity prices in the country,
including imposing a non-transferable water usage tax of no less than USD0.02
per kilowatt hour (KWh) generated to all hydroelectric generation companies in
the country. This action follows another announcement made by the Panamanian
government to reduce electricity tariffs to all users by approximately 30%. The
new tax for water usage could significantly reduce AES Panama and Enel Fortuna's
cash flow generation going forward.

Fitch's initial estimates are that AES Panama and Fortuna's historical EBITDA
generation will decrease by no less than 30% and 33%, respectively. These
reductions are in line with the Panamanian president's intention to lower
electricity prices by 30% throughout the country. Furthermore, the Panamanian
president has announced the possibility of regulating electricity generation
companies' margins if it's necessary to reach the government goals of lower
prices to end-users by 30%. In Fitch's view, these initiatives might have
short-term benefits for consumers, however, they will likely have serious
long-term repercussions on the viability of future private investment in the
industry.

AES Panama's credit quality will be the most affected given its current leverage
position, ongoing investments and historically high dividend payments. Fitch
expects that the new water usage charge could increase the company's leverage,
as measured by total debt to EBITDA, from 2.2x as of year end 2008 to above 3.5x
for the next few years. Absent management measures to maintain the company's
capital structure unchanged, leverage could exceed 5.0x if the government forces
generation companies to lower contracted prices in addition to the already lower
spot sales prices negotiated one month ago. Somewhat positive for AES Panama is
its high contracted position of approximately 99% of firm capacity, which
provides revenue stability.

Although Fortuna's current financial position is very strong, the recent
regulatory changes will significantly weaken future cash flow generation and
could also make it more volatile. Given Fortuna's historically low contracting
position, the company is highly exposed to regulatory changes regarding how the
spot market operates. Fortuna's leverage is not expected to increase above 2.7x
as a result of the aforementioned initiatives and the company's ratings have a
better chance of being affirmed once there is more clarity regarding the ongoing
regulatory changes.

The government's intention to redirect the contracting responsibility to its
state-owned transmission company, ETESA, is viewed positively by Fitch for the
sector. If implemented properly, this measure could centralize and standardize
contracting practices and will add transparency to the power purchasing
practices. Distribution companies that currently contract close to 100% of their
demand are expected to be unaffected by the regulatory changes. Positively, from
the perspective of distribution companies, is the potential reduction in
end-users' tariffs, which will ease working capital needs and lower the monetary
effect of electricity losses not recognized through tariffs.

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
Marcelle Millet, +506 2 296 9454 (San Jose)
Lucas Aristizabal, +1-312-368-3260 (Chicago)
Media Relations:
Cindy Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com

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