December 5, 2012 / 5:20 PM / 5 years ago

TEXT-S&P revises Ampla Energia e Servicos to positive

     -- 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.

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 

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 

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.

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 
     -- 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.

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 All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at Use the Ratings search box located in the left 

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