9 Min Read
Overview -- In November 2012, Golden Gate Energy Investments (GGEI) announced its integration with Termocandelaria Power Ltd. (TPL), a company that owns a 314-megawatt electricity generating facility near the city of Cartagena, along Colombia's Caribbean Coast. -- We view the merger as neutral for the rating on Golden Americas Ltd., which has an indirect stake in Termobarranquilla S.A. E.S.P. (TEBSA) through its 26.3% participation in GGEI, mainly because it was in TEBSA's original shareholder agreement and we do not expect a major impact from a financial nor from an operational perspective. -- We are affirming our 'B-' corporate credit and senior secured debt ratings on GA. -- The stable outlook reflects our expectation that GA will be able to upstream enough cash from Golden Gate to service its interest and principal. Because the management fees would cover some 60% of interest payments, we believe that GA could bridge the gap even if TEBSA can continue to pay only a fraction of the interest payments on the subordinated debt. Rating Action On Dec. 14, 2012, Standard & Poor's Ratings Services affirmed its 'B-' corporate credit and senior secured debt ratings on Cayman Islands-based special-purpose vehicle Golden Americas Ltd. (GA). The outlook is stable. Rationale Our ratings on GA reflect our assessment of the company's business risk profile as "fair", given GA's investment in Colombia-based electric generation company Termobarranquilla S.A. E.S.P. (TEBSA; not rated). The ratings also reflect a "highly leveraged" financial profile. GA's repayment capacity depends on its ability to upstream funds from TEBSA. GA receives these funds through management fees, which we view as having at least a similar priority as TEBSA's senior debt; and through payments of subordinated debt from TEBSA to Golden Gate Energy Investments Ltd. (GG; not rated), which in turn go to GA. Because the flows of subordinated debt from TEBSA, which cover 40% of debt service until 2016, are a weaker source of cash flow, we consider GA's creditworthiness weaker than TEBSA's. The rated debt at GA also benefits from a debt service reserve account, which covers the next two coupon payments. TEBSA's revenues have been decreasing during the past four years, as a result of the structure of the power purchase agreement (PPA) it holds with Generadora y Comercializadora de Energia del Caribe S.A. E.S.P. (Gecelca). In 2012, revenue decreased about 10%. Cash from operations has been also decreasing in line with this negative trend. Financial expenses increased mostly because TEBSA devoted around $20 million each year to service subordinated debt interest. Based on the shareholders' agreement signed between Termocandelaria S.C.A and Americas Energy Fund I L.P. (AEF, not rated) in 2010, the parties would initiate actions to integrate GGEI and TPL before the fifth anniversary of the agreement. TPL owns 100% of Termocandelaria S.C.A., a 314-megawatt (MW) electricity generating facility, located near the city of Cartagena. In September 2011, the company started the process in order to carry on the merger of the described companies, and finally in November 2012, announced the conclusion of the transaction. We believe that the merger will strengthen the company's competitive position, as we expect it will become the fifth-largest power generator in the Colombian market, with about 8% of market share. The integration will lead, in our opinion, to positive synergies between TEBSA and Termocandelaria S.C.A., especially given the similar characteristics of both thermal plants. We do not expect major changes from an operational or managerial standpoint. Additionally, all liquidity enhancement and corporate guarantees will remain in place. For analytical purposes, GA's cash flow streams can be divided into two periods. Until the PPA between Gecelca and TEBSA expires in 2016, GA receives a management fee of $918,000 plus dividends from Golden Gate, funded from the partial interest payment on subordinated debt. In our base case, this should result in an average fixed-charge coverage ratio of about 1.3x for GA's debt. As now, GA has been receiving all the management-related fees and dividends from Golden Gate in a timely manner. From 2016 through 2018, TEBSA's ability to cancel subordinated debt will depend on energy prices, the dispatch rate, and availability payments. Lower-than-expected dispatch rates, prices, or availability payments would result in refinancing risks for principal. We have assessed TEBSA's business profile as fair and its financial profile as highly leveraged. We view as positive that almost 85% of TEBSA's debt is subordinated and owed to related parties. TEBSA is an energy generation project that operates a 128- MW gas-fired power plant and a 790-MW combined-cycle power plant near Barranquilla, Colombia. Cayman Islands-incorporated Golden Americas is a special-purpose vehicle (SPV) that Americas Energy Fund I L.P., an Ontario-based limited partnership, used to acquire a stake in TEBSA. GA has a 26.3% stake in Golden Gate, another SPV, which in turn owns 57.34% of TEBSA and 100% of Los Amigos Leasing Co. Ltd. (not rated), a company created to provide power generation units to TEBSA. TEBSA's ownership structure also includes Colombian state-owned company Gecelca (42.514%) and others (0.146%). Although GA doesn't control Golden Gate, it has a shareholder agreement with the controlling shareholder that requires four out of five directors to approve decisions at Golden Gate. Because GA can appoint two out of the five directors, we believe it has a certain indirect control over TEBSA's financial policy through Golden Gate. It can make no changes to the subordinated debt without GA's consent. Also, the shareholders' agreement establishes that Golden Gate has to distribute to shareholders all funds flowing into it--another factor relevant to GA's repayment capacity. Liquidity We believe that GA has adequate liquidity to meet its needs over the next two years. Relevant aspects of our assessment of the company's liquidity include: -- Our expectation that sources of liquidity (including cash balances, a management fee of $918,000, and dividends from GG) will exceed uses by at least 1.2x over the next two years; -- The company's debt service reserve account, which covers the next two coupon payments; and -- GA's expected compliance with the financial covenants included in its debt instruments. GA had cash and cash equivalents of about $1.7 million as of September 2012, compared with short-term interest payments of about $1.4 million each year until its final debt maturity in 2018. We expect no other significant expenses at the GA level in the next few years. Outlook The stable outlook reflects our expectation that GA will be able to upstream enough cash from Golden Gate to service its interest and principal. Because the management fees would cover some 60% of interest payments, we believe that GA could bridge the gap even if TEBSA can continue to pay only a fraction of the interest payments on the subordinated debt. We also believe that TEBSA will be able to improve its revenue structure after the PPA expires, generating enough cash flow to repay subordinated debt and dividends, and allowing GA to repay principal. The credit quality of the underlying operating company, TEBSA, which generates the cash flow, limits rating upside. Ratings could suffer if TEBSA's costs increase, further reducing its ability to service subordinated debt; or if potential additional debt issuance at TEBSA's level jeopardizes its financial risk profile and GA's cash availability does not increases in the short-to-medium term. Related Criteria And Research -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012 -- Methodology and Assumptions: Standard and Poor's Liquidity Descriptors for Global Corporate Issuers, Sept. 2011 -- "Key Credit Factors: Business and Financial Risks In The Investor-Owned Utilities Industry" Nov.8, 2008 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 -- Corporate Criteria--Parent/Subsidiary Links; General Principles; Subsidiaries/Joint Ventures/Nonrecourse Projects; Finance Subsidiaries; Rating Link to Parent, Oct. 28, 2004 Ratings List Ratings Affirmed Golden Americas Ltd. Corporate Credit Rating B-/Stable/-- Senior Secured B- 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.