November 30, 2012 / 5:55 PM / 5 years ago

TEXT-Fitch affirms Golden Americas Ltd's 'B+' IDR

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Nov 30 - Fitch Ratings has affirmed Golden Americas Ltd's (GA) foreign
currency Issuer Default Rating (IDR) at 'B+' and its USD14.4 million note
issuance due 2018 at 'B+/RR4' . The Rating Outlook is Stable.

GA's ratings reflect the company's minority shareholder position in
Termobarranquila (TEBSA), as well as the structural subordination of its debt to
that of TEBSA. Positively, the rating factors in TEBSA's relatively stable and
predictable cash flow, which is used to service interest payments, as well as
GA's adequate debt service coverage.

GA is a vehicle created to raise funds to finance the acquisition of TEBSA. As a
result, it is in a highly subordinated position relative to the cash flow of its
operating subsidiary, TEBSA. GA generates cash flow to service its financial
obligation from dividends received from Golden Gate Energy Investment LTD (GG),
an intermediate subsidiary in which GA has a 26.3% ownership and which
indirectly owns 57.34% of TEBSA. GG generates revenues from an operating lease
between TEBSA and LEASECO, a wholly owned subsidiary of GG, and from dividends
and intercompany loan payments from TEBSA. This structure diminishes GA's
ability to control the flow of dividends used to service its debt of USD14.4
million and structurally subordinates GA's debt to that of TEBSA.

The rating includes TEBSA's new senior debt of around USD43 million to pay a
subordinated loan and refinance current maturities. Fitch expects this new debt
amortization schedule to slightly reduce TEBSA's dividend payments to its
shareholders, including GG and therefore GA. This reduction is mitigated to some
extend by greater cash flows between LEASCO and GG after LEASCO pays off its
USD10 million of senior secured debt with proceeds from the new debt issuance at

Although GA does not control GG, the company does benefit from a shareholders'
agreement that allows the company to appoint two of the five members of GG's
board of directors. GA's debt covenants mandate the company to vote against
allowing GG to enter into any indebtedness if proceeds from such borrowing are
not associated with increases in capacity or the refinancing of existing debt.
Should the intermediate holding company, GG, issue any debt, it will further
increase GA's structural subordination to its cash flow, therefore having a
negative impact on GA's credit quality.

TEBSA's cash flow is considered stable and predictable, reflecting a
well-structured power purchase agreement (PPA) between TEBSA and state-owned
utility GECELCA (Fitch National Scale Rating of 'AA(col)'; Stable Outlook). The
PPA payments are estimated to amount to approximately USD50 million per year
through 2016. TEBSA, in turn, uses the proceeds from the PPA to cover fixed
costs of about USD12 million per year and to service its lease agreement with
LEASECO and maintenance agreement with GPUI Colombia S.A.S. As a result of this
structure and while the PPA continues, credit quality of GA and GECELCA are
essentially linked.

TEBSA's standalone credit quality is supported by its competitive position as
the largest thermoelectric generation plant in Colombia, with 21% of
thermoelectric installed capacity and 9.2% of the total power generating
capacity. Its credit quality also benefits from its relationship with its
off-taker, GECELCA. TEBSA's 918 megawatts (MW) of installed thermoelectric
capacity is primarily located on Colombia's Atlantic Coast. TEBSA receives its
fuel needs from GECELCA under terms also outlined in the PPA, which mitigates
the company's exposure to fuel cost risk and adds to cash flow stability and

As of Sept. 2012, TEBSA standalone reported EBIT of USD1.3 million and a total
subordinated debt of USD61.5 million. The weak EBIT of TEBSA reflects both the
onerous lease payments to LEASECO which are accounted as operating cost and the
declining PPA payments from GECELCA, which have bottomed at USD50 million in
accordance with the preset capacity payment schedule.

Adequate debt service coverage: GA's credit protection metrics are considered
adequate for the assigned rating and are expected to remain relatively stable
going forward as a result of LEASECO's stable cash flow generation. GA's cash
flow generation is expected to range between USD1.8 million and USD4 million per
year over the next five years, which compares favorably with its debt service,
composed entirely of interest expense, of USD1.4 million. Fitch expects GA's
interest coverage to average approximately 1.8x going forward, down from its
initial expectation of approximately 2.1x as a result of the debt increase at
TEBSA. This metric is still considered adequate for the rating category.

Rating Drivers

Key consideration for a negative action would be a significant increase of
TEBSA's senior debt, which reduces cash flows aimed at Golden America. In the
scenario where interest coverage levels fall further, to 1x, Fitch could
consider a downgrade. Key consideration for a positive rating action would be an
upgrade in TEBSA, as well as a sustained increase in GA's incomes and dividends
received, reaching debt coverage metrics of up 3.0x would positively affect the
company's ratings.

Additional information is available at and The ratings above were solicited by, or on behalf of,
the issuer, and therefore, Fitch has been compensated for the provision of the

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' Aug. 8, 2012;
--'Evaluating Corporate Governance' Dec. 13, 2011;
--'Parent and Subsidiary Rating Linkage' Aug. 8 2012;
-- 'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers',
May 13, 2012.

Applicable Criteria and Related Research:
Corporate Rating Methodology
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
Parent and Subsidiary Rating Linkage
Evaluating Corporate Governance

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