TEXT-S&P affirms Abengoa S.A. ratings

Wed Jun 27, 2012 1:05pm EDT

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(The following statement was released by the rating agency)
     
Overview
     -- Abengoa's recent performance and credit metrics remain in line
with our expectations.
     -- We are therefore affirming our 'B+' long-term rating on Abengoa. 
     -- In accordance with our new criteria on the links between short-term 
and long-term ratings for corporate and sovereign issuers, we are assigning a 
'B' short-term rating to Abengoa.
     -- The stable outlook reflects our expectations that the group will 
gradually improve its consolidated leverage ratios from its current peak 
through growth in revenues and profitability.

Rating Action
On June 27, 2012, Standard & Poor's Ratings Services affirmed its 'B+' 
long-term corporate credit rating on Spain-headquartered engineering and 
construction (E&C), technology, and energy group Abengoa S.A. The outlook is 
stable.

At the same time, we assigned our 'B' short-term corporate credit rating to 
the company. 


We are also affirming our 'B+' issue ratings on Abengoa's EUR300 million and 
EUR500 million senior unsecured notes, and on the $650 million senior unsecured 
notes issued by Abengoa Finance S.A.U. The recovery rating on these 
instruments is '4', reflecting our expectation of average (30%-50%) recovery 
in the event of a payment default. 

Rationale

The ratings reflect our continued assessment of Abengoa's business risk 
profile as "fair" and its financial risk profile as "highly leveraged." 


Following robust revenue and EBITDA growth in 2011, Abengoa's consolidated and 
nonconsolidated (excluding all contractually nonrecourse-financed projects) 
adjusted debt to EBITDA stood at 9.5x and 6.7x, respectively, at year-end 
2011. These credit metrics are in line with our expectations for the current 
rating. 

For a detailed analysis of Abengoa's long-term creditworthiness, see our full 
analysis published today on RatingsDirect on the Global Credit Portal.


Liquidity
Following the application of our new criteria governing the link between 
long-term and short-term ratings for corporate and sovereign issuers, our 
short-term rating on Abengoa is 'B', which takes into account Abengoa's 
long-term corporate credit rating and our assessment of the company's 
liquidity (see "Short-Term/Long-Term Ratings Linkage Criteria For Corporate 
And Sovereign Issuers," published on May 15, 2012). 

We assess Abengoa's liquidity as "adequate," as defined in our criteria, 
reflecting the substantial cash accumulated by the company, coupled with its 
available committed credit lines. The refinancing of the syndicated bank 
facility in May 2012 considerably reduced short-term debt maturities and 
contributed to smooth the repayment profile from 2013, which further supports 
the liquidity position. However, Abengoa's high working capital deficit, and 
our expectation that gross debt won't decrease in the short term, prevent us 
from revising our liquidity assessment to "strong." 

On March 31, 2012 (latest available data), we estimate Abengoa's liquidity 
sources at the corporate level by year-end 2012 to be around EUR3 billion, 
excluding all contractually nonrecourse-financed projects. Liquidity sources 
include:
     -- Unrestricted cash balances of EUR2.45 billion,
     -- EUR376 million of proceeds from the disposals of Brazilian transmission 
lines, and
     -- EUR240 million available under committed long-term credit lines.


This cash is sufficient to cover Abengoa's expected liquidity uses for the 12 
months to March 31, 2013, by close to 4x. For that period, we forecast that 
uses will include:
     -- EUR221 million of debt maturities, after considering the refinancing of 
the syndicated facility in May 2012, and 
     -- About EUR470 million of negative discretionary cash flows (DCF; 
operating cash flow after capital expenditures and dividends). 


On a fully consolidated basis--including all contractually 
nonrecourse-financed projects--we estimate liquidity sources through March 31, 
2013 to be around EUR6 billion, comprising:
     -- Unrestricted cash balances of EUR3.1 billion,
     -- EUR376 million of proceeds from the disposed Brazilian assets,
     -- EUR2.3 billion available under committed long-term credit lines as of 
the same date, and 
     -- EUR224 million of equity committed by partners in projects financed on a
non-recourse basis. 


After considering the refinancing of the syndicated facility that took place 
in May 2012, we view the above cash to be sufficient to cover Abengoa's 
expected uses over the next 12 months from March 31, 2012 by 1.5x. These 
liquidity needs include: 
     -- EUR653 million of debt maturities, and 
     -- Our estimate of about EUR3.4 billion of negative DCF, including a 
significant working capital outflow. 


Debt maturities for the 12 months from March 2013, after taking into account 
the refinancing of the syndicated facility in May 2012, total about EUR1 billion
on a fully consolidated basis (that includes EUR426 million of nonrecourse 
maturing debt), which could be almost fully covered by the available sources 
described above under our baseline forecast. For 2014, debt maturities total 
about EUR900 million at the corporate level and EUR382 million on a nonrecourse 
basis. We think these maturities will likely require refinancing based on our 
expectation of Abengoa's cash flow generation under our base case.

To date, Abengoa has generated increasingly positive contributions to annual 
operating cash flow by actively managing its cash conversion cycle in parallel 
with intense growth. As a consequence, the group's overall net working capital 
(that is, inventories, plus receivables, minus payables) deficit has 
significantly increased, reaching an all-time high of EUR3 billion at the end of
2011 (EUR2.2 billion at the end of March 2012). We believe Abengoa's excess 
liquidity partly offsets the risk associated with a potential unwinding of its 
working capital deficit, which could occur if Abengoa's strong growth 
trajectory slows down materially or if cash conversion conditions deteriorate.

Both the incurrence covenant on Abengoa's senior unsecured notes and the 
maintenance covenant on most of the group's bank debt specify debt-to-EBITDA 
ratios of less than 3x (where debt and EBITDA exclude nonrecourse 
subsidiaries, and debt is netted with total consolidated cash and short-term 
financial investments, including those held by nonrecourse subsidiaries). 
Furthermore, the syndicated bank facility renewed in May 2012 includes a more 
demanding ratio of 2.5x net debt to EBITDA from 2015. As of March 31, 2012, 
the ratio was 1.5x, and we expect to company to maintain sufficient covenant 
headroom even if EBITDA is to decline by 15%. 


Recovery analysis
The issue ratings on Abengoa Finance S.A.U.'s $650 million senior unsecured 
notes due 2017 and on Abengoa's EUR300 million and EUR500 million senior
unsecured 
notes due 2015 and 2016 respectively, are 'B+', in line with our corporate 
credit rating on Abengoa. The recovery rating on these instruments is '4', 
reflecting our expectation of average (30%-50%) recovery in the event of a 
payment default. 



For a detailed recovery analysis, see our full analysis published today.




Outlook
The stable outlook on Abengoa reflects our view that the group will gradually 
improve its consolidated leverage ratios from their 2011-2012 peak through 
growth in revenues and profitability. This is despite the group, according to 
our expectations, being unlikely to generate positive free operating cash 
flows before 2015, owing to a significant capex program and the immaturity of 
its project portfolio. At the current rating level, we expect the group to 
maintain a ratio of adjusted debt to EBITDA below 10x and on a gradual 
downward trend by 2015, when we expect to see positive consolidated free cash 
flow following the maturity of a large project portfolio. 

We could lower the rating on Abengoa if the potential improvement in financial 
ratios proved slower than we currently expect. We think ratings upside could 
follow sizable deleveraging and stronger cash flow generation, enabling 
Abengoa to deliver ratios of adjusted debt to EBITDA of less than 5x 
(corporate level) and 7x (consolidated). 

Related Criteria And Research
     -- Principles Of Credit Ratings, Feb. 16, 2011 
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 
     -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, 
May 27, 2009
     -- Methodology And Assumptions: Liquidity Descriptors For Global 
Corporate Issuers, Sept. 28, 2011
     -- Short-Term/Long-Term Ratings Linkage Criteria For Corporate And 
Sovereign Issuers, May 15, 2012
     -- Abengoa S.A., June 27, 2012

Ratings List

Ratings Affirmed; New Rating
                                        To                 From
Abengoa S.A.
 Corporate Credit Rating                B+/Stable/B        B+/Stable/--


Ratings Affirmed

Abengoa S.A.
 Senior Unsecured                       B+                 
  Recovery Rating                       4

Abengoa Finance S.A.U.
 Senior Unsecured*                      B+                 
  Recovery Rating                       4

*Guaranteed by Abengoa S.A.

 (Caryn Trokie, New York Ratings Unit)
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