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TEXT-Fitch assigns Interconexion Electrica 'F1+(col)' rating
December 18, 2012 / 6:35 PM / 5 years ago

TEXT-Fitch assigns Interconexion Electrica 'F1+(col)' rating

Dec 18 - Fitch Ratings has assigned an 'F1+(col)' to Interconexion
Electrica's (ISA) proposed commercial paper. These instruments will be
included in the company's current local notes program rated 'AAA(col)'.

ISA's ratings reflect the company's low business risk profile, which is
characteristic of the power transmission business, and the company's natural
monopoly position and geographic diversification. The ratings are also
underpinned by ISA's comfortable liquidity levels and adequate credit metrics.

ISA's ratings reflect the company's low business risk level supported by its
regulated income and natural monopoly position in the countries in which it has
operations. During the last 12 months (LTM) ended Sept. 30, 2012, electric
transmission accounted for 78.9% of ISA's consolidated revenues and nearly 83%
of ISA's consolidated EBITDA. ISA on a standalone basis accounted for 20.4% of
its consolidated EBITDA for the same LTM period. Most of the revenues from
electric transmission operations in Colombia (70%) are regulated and its tariffs
are reset every five years. Previous tariff resets have not resulted in
significant changes, due to the balanced regulatory environment in Colombia,
which aims at providing adequate returns on investment.

ISA operates in Brazil through a 37.8% indirect controlling stake in Companhia
de Transmissao de Energia Eletrica Paulista S.A. (CTEEP; rated 'AA+(bra)' by
Fitch). Although ISA's financial results consolidate CTEEP, the company does not
fully benefit from this subsidiary's cash flow generation given its ownership
position. CTEEP accounts for around 54% of ISA's consolidated EBITDA. ISA also
generates cash flow from its investments in Peruvian transmission companies (7%
of consolidated EBITDA). Both the Brazilian and Peruvian operations have most of
their revenues guaranteed by regulated tariffs adjusted annually by inflation
during their concession periods.

ISA's liquidity is considered robust and is characterized by healthy cash on
hand levels, manageable debt amortization and adequate access to local and
international capital markets. As of Sept. 30, 2012, ISA had approximately
USD985 million of consolidated cash on hand (USD120 million at the parent
company) and USD785 million of consolidated short-term debt. ISA's maturity
profile is manageable, as its long-term debt amortization schedule is spread
between 2013 and 2041.

ISA's short-term debt has been around 16% of total debt over the years. In the
medium term, ISA's liquidity position is expected to remain healthy as a result
of the company's stable cash flow generation. As of Sept. 30, 2012, ISA
standalone had USD120 million of cash and marketable securities, which will
allow the company to meet its USD111 million of current maturities.

ISA has a strong financial profile, which is characterized by strong cash
generation, moderately low debt levels and healthy interest coverage. Despite
this, ISA's consolidated credit metrics are somewhat affected by the increase in
debt following the company's acquisition of Intervial in Chile. ISA's
stand-alone financial profile is strong and consistent with an investment grade
rating. During the LTM ended Sept. 30, 2012, the company reported an EBITDA plus
dividends of approximately USD383 million and total debt of USD841 million. This
translates into a leverage ratio of 2.2x, while the company's interest coverage
was 4.9x.

For the LTM ended Sept. 30, 2012, ISA reported a consolidated EBITDA of USD1.6
billion and total consolidated adjusted debt of USD6 billion (including USD591
million of ISA Capital preferred shares). This translates into a leverage ratio,
as measured by total debt-to-adjusted EBITDA of 3.7x. Interest coverage, as
measured by EBITDA-to-interest expense is 2.7x, considered acceptable for ISA's
rating category.

Fitch expects ISA's consolidated credit metrics to weaken over the
short-to-medium term as a consequence of the concession renewal process of the
company's subsidiaries in Brazil. CTEEP, ISA's subsidiary in Brazil, accepted
the Brazilian government proposal to early renew its main concession for an
upfront payment and reduced revenues. CTEEP is expected to repay a significant
portion of its non-project finance debt with the proceeds it will receive from
the concession renewal process. Leverage could remain high in the interim while
some of CTEEP's project finance subsidiaries commence operations.

Fitch considers ISA's expansion plan to be somewhat aggressive as the company
expects to have revenues of USD3.5 billion (up from the current USD2.4 billion)
over the next four years by investing, for the most part, in electric
transmission businesses inside and outside Colombia. In 2016, the company
expects to generate approximately 20% of its revenue from businesses other than
transmission, such as toll roads and engineering, procurement and construction
services. In line with its strategy, ISA acquired 100% of Intervial Chile, the
major concession road operator in Chile. During the LTM ended Sept. 30, 2012,
Intervial accounted for 17% and 15% of ISA's consolidated revenues and EBITDA,
respectively. In Fitch's opinion, the company's incursion into the toll roads
infrastructure business does not materially alter ISA's business risk profile as
electric transmission is expected to continue generating the majority (80%) of
its cash flow.

The company's aggressive growth strategy could, however, weaken ISA's
consolidated credit metrics. ISA's individual figures would not be affected
significantly given that the company expects to execute most of the investment
plan at a subsidiary level. Total capital investment over the next four years is
expected to amount to approximately USD2.5 billion to be financed 30% with debt
and 70% with internal cash flow generation. The company's capital investments
and associated financing strategy will marginally increase the company's
consolidated leverage, yet is expected to remain within the assigned rating

A combination of conservative credit metrics and sustained growth in cash flows
might result in a positive rating action. Conversely, higher than expected debt
levels, deteriorating cash generation or regulatory changes that negatively
affect the company's financial performance could lead to a negative rating

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;
--'Parent and Subsidiary Rating Linkage' Aug. 8, 2012;
--'Liquidity Considerations for Corporate Issuers' June 12, 2007.

Applicable Criteria and Related Research:
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
Liquidity Considerations for Corporate Issuers

Our Standards:The Thomson Reuters Trust Principles.
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