TEXT-S&P affirms E-CL SA's 'BBB-' rating

Fri Nov 9, 2012 5:24pm EST

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Overview
     -- E-CL enjoys a good cash flow generation deriving from long-term power 
sale contracts with solid counterparties, which allow it to maintain good 
credit metrics.
     -- We are affirming our 'BBB-' issuer credit rating on Chile-based power 
generator E-CL S.A.
     -- The stable outlook reflects our expectation that E-CL'S EBITDA will 
return to levels between $300 million and $350 million in 2013 and 2014 and 
that its total debt EBITDA ratio will remain below 3.5x even if the company 
carries out significant new investments.
Rating Action
On Nov. 9, 2012, Standard & Poor's Ratings Services affirmed its 'BBB-' issuer 
credit rating on Chile-based power generator E-CL S.A. The outlook remains 
stable. 
E-CL S.A. is the largest power generator in the Chilean Northern 
Interconnected System with a market share of around 50% in terms of installed 
capacity and is 52.77% indirectly owned by France-based multi-utility GDF Suez 
S.A. (A/Stable/A-1).
Rationale
Our ratings on E-CL S.A. reflect the company's "satisfactory" business risk 
profile and "intermediate" financial risk profile. E-CL's business risk 
profile mainly benefits from its strong market position in Chile's Northern 
Interconnected System (SING), with about 50% market share in terms of 
installed power generating capacity; its diversified capacity mainly among 
coal and natural gas fired units; its large portfolio of power sale contracts 
with solid counterparties; a sale pricing mechanism that allows to 
pass-through fuel costs to its customers; and its strong ownership. The 
ratings also consider the high competitive pressures from other large power 
generators, volatile market conditions in the SING due to potential 
operational disruptions in a context of high contracted sales and highly 
volatile fuel prices that significantly affect E-CL's operating costs, and the 
potential significant increase in debt levels if the company decides to carry 
out certain material investments like two coal-fired units of 375MW each, that 
would cost about $1.6 billion. 

We expect E-CL's credit metrics to weaken quite significantly in fiscal 2012 
mainly due to a temporary mismatch between cost and sale price of a new power 
sale contract with Chilean electric distributor EMEL during the first 9 months 
of 2012. In this context, we expect EBITDA margin, debt to EBITDA, and funds 
from operations (FFO) to debt to decrease to about 23%, 3x, and about 25%, 
respectively, in fiscal 2012 compared with 29%, 1.9x, and 59.5% in 2011. 
However, we expect this negative effect to be eliminated as of the fourth 
quarter of 2012 due to E-CL's new long term supply contract of liquid natural 
gas (LNG), which is adjusted by according to Henry Hub, which is one of the 
indexation factors for the new power sale contract with EMEL. In that context, 
we expect EBITDA margin to recover to about 26% to 27% and debt to EBITDA to 
remain under 3.5x in 2013-2014, even if the company decides to carry out the 
abovementioned significant new investments.

GDF Suez (A/Stable/A-1) indirectly owns 52.77% of E-CL. The rest of the 
capital stock is mostly in hands of Chilean pension funds and other 
institutional investors. 

Liquidity
We view E-CL's liquidity as adequate (per our criteria). Relevant aspects of 
our assessment of the company's liquidity profile include the following:

     -- We expect that sources of liquidity (including FFO and cash balances) 
over the next two years will exceed uses by at least 1.2x.
     -- EC-L does not face relevant debt maturities in the 2013-2014 period. 
     -- We expect that liquidity sources will continue to exceed uses, even if 
EBITDA were to decline by 20%.
     -- The company has good access to credit markets.
     -- The company currently does not have any financial covenants.

As of Sept. 30, 2012, E-CL had cash holdings of $200 million compared with $67 
million in short-term debt. We expect E-CL to maintain cash holdings of at 
least $100 million and to continue enjoying a good financial flexibility. 
However, the company could decide to develop a large investment plan that 
could somewhat hurt its free operating cash flow during the peak investment 
period. In that case of significant higher investments, we expect debt to 
EBITDA levels to remain below 3.5x, and that E-CL will further strengthen its 
liquidity though a higher cash position or committed bank lines, and 
potentially reduce dividends.
Outlook
The stable outlook reflects E-CL's strong market position and our expectation 
that after the weakening in fiscal 2012 EBITDA will return to levels between 
$300 million and $350 million in 2013 and 2014 and total debt to EBITDA will 
remain under 3.5x even if the company decides to carry out significant new 
investments. The rating also incorporates cash reserves of at least $100 
million and the company's good financial flexibility. The ratings could be 
raised if there are more certainties regarding the potential materialization 
of significant debt-funded investments for the 2013-2017 period and if 
projected consolidated debt to EBITDA is between 2x-2.5x. The ratings could 
come under pressure if performance in the company's more efficient units 
deteriorates and/or if the company assumes higher-than-projected debt levels 
that lead to debt to EBITDA of greater than 3.5x, while presenting 
weaker-than-expected liquidity and financial flexibility.
Related Criteria And Research
     -- Standard & Poor's Liquidity Descriptors for Global Corporate Issuers, 
Sept. 28, 2011 
     -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, 
May 27, 2009 
     -- 2008 Corporate Ratings Criteria, April 15, 2008
Ratings List
Ratings Affirmed

E-CL S.A.
 Corporate Credit Rating                BBB-/Stable/--     

E-CL S.A.
 Senior Secured                         BBB-               
 Senior Unsecured                       BBB-               



Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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