TEXT-S&P revises Ampla Energia e Servicos to positive
Overview -- Brazil-based electricity distribution company AMPLA continues to enjoy adequate credit metrics and is gradually improving its operations. -- We are revising the outlook to positive from stable and affirming our ratings, including the 'BB' global scale and 'brAA-' national scale corporate credit ratings, on AMPLA. -- The positive outlook reflects Ampla's improving operations and strong financial metrics for its rating category, which could boost its liquidity. Rating Action On Dec. 4, 2012, Standard & Poor's Ratings Services revised its outlook Ampla Energia e Servicos S.A. (AMPLA) to positive from stable. At the same time, we affirmed our 'BB' global scale and 'brAA-' national scale corporate credit ratings on the company. Rationale The outlook revision reflects our expectations that AMPLA's operations will continue to improve and that credit metrics will remain strong for the rating category, leading to a more robust liquidity and an upgrade. The ratings on AMPLA reflect its "fair" business risk profile, "significant" financial risk profile, and "less than adequate" liquidity. The corporate credit rating reflects AMPLA's somewhat weak operating metrics due to its high level of electricity losses and past-due receivables and its large capital expenditures, which pressure free cash-flow generation. The ratings also incorporate AMPLA's strong credit metrics for its rating category, rising consumption, and favorable growth prospects in its concession area. We assess Ampla's business risk profile as "fair" under our criteria. The company has the exclusive right to distribute electricity in part of the state of Rio de Janeiro and serves stable and sizable residential and commercial customer bases. Nevertheless, AMPLA's concession area is challenging and requires a significant amount of investment to improve operations. Although the company's electricity losses are gradually improving, they are still high--19.4% in the 12 months ended September 2012--and past-due receivables remain elevated. AMPLA's annual tariff readjustment resulted in an increase of 7.01%, boosting its operating margins. We expect that the next tariff review cycle, to take place in 2014, will have a modest impact on cash generation and margins. We favorably view the overall predictability and stability of the regulatory framework that governs the Brazilian electricity sector. We view AMPLA's financial risk profile as "significant." The company has strong credit metrics for its rating category. Its total debt to EBITDA was 2.1x and funds from operations (FFO) to total debt was 28.3% for the 12 months ended Sept. 30, 2012, and we expect these metrics to improve slightly in 2012 and 2013 and to reach about 2.3x and 30%, respectively, in 2014 as a result of the tariff review. The company refinanced its short-term debt following the June 2012 issuance of the R$400 million debenture, improving its capital structure. The company has the concession to distribute electricity to 66 municipalities (65 in the state of Rio de Janeiro and one in the state of Minas Gerais), serving approximately 2.7 million customers. In the nine months ended September 2012, the company distributed 7,799 gigawatt-hours (GWh) of electricity, with captive consumers accounting for 6,675 GWh of the total. Liquidity We continue to assess AMPLA's liquidity as "less than adequate" because we foresee higher cash uses than sources in 2012 and 2013. The company's large capital expenditure plan and its dividend distributions limit the liquidity and ratings. We asses AMPLA's liquidity based on the following assumptions and expectations: -- Liquidity sources (including cash and FFO) will exceed cash uses by less than 1.2x for the next two years; and -- Negative free operating cash flow in 2013 due to high capital expenditures and moderate dividend distribution. Liquidity sources include our expectation of more than R$600 million in FFO for the next two years and nominal cash balances. Uses of liquidity include short-term debt maturities of about R$150 million, capital expenditures of about R$450 million, and the dividend distributions payout of 25%. The mitigating factor is our expectation that AMPLA will continue enjoying adequate access to banks and debt capital markets to refinance its debt. Also, in our view, the company has adequate cushion under its financial covenants to survive a significant drop in EBITDA. Outlook The positive outlook reflects our expectations that AMPLA's operations will continue to improve and that credit metrics will remain strong for the rating category. This could lead to a more robust liquidity and an upgrade. We expect that the relatively high capital expenditure program to reduce electricity losses and improve quality metrics will lead to stronger operating margins and an improving business profile. We expect the company to post total debt to EBITDA of about 2x and FFO to total debt of 30%-35% in 2012 and 2013. Conversely, we could lower the ratings if the company's operations deteriorate, reducing its operating cash flow generation, or if it makes aggressive dividend distributions, even amid significant capital expenditures, pressuring its liquidity even more. Related Criteria And Research -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009 -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 Ratings List Ratings Affirmed; Outlook Action To From Ampla Energia e Servicos S.A Corporate Credit Rating BB/Positive/-- BB/Stable/-- Brazilian Rating Scale brAA-/Positive/-- brAA-/Stable/-- Senior Unsecured brAA- 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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