September 17, 2012 / 9:03 PM / 5 years ago

TEXT-Fitch affirms Taesa's ratings at 'BBB'

Sept 17 - Fitch Ratings has affirmed Transmissora Alianca de Energia
Eletrica S.A.'s (Taesa) 'BBB' Foreign and Local Currency Issuer
Default Ratings (IDRs) and 'AAA(bra)' Long-Term National Scale Rating. The
ratings have also been removed from Rating Watch Negative and assigned a Stable
Rating Outlook. 

At the same time, Fitch has assigned a Long-Term National Scale Rating of 
'AAA(bra)' to Taesa's proposed third debenture issuance of up to BRL1.6 billion,
divided into up to three series, with final maturities within five, eight and 12
years. The proceeds of the issuance will be used to repay existing debts from 
the fourth and fifth issuance of promissory notes, with outstanding balance at 
the end of June 2012 of BRL2.2 billion. The two promissory notes proceeds were 
used as bridge-loans for full acquisition of five power transmission assets 
(NTE, STE, ATE, ATE II and ATE III) from Abengoa Concessoes Brasil Holding S.A. 
(Abengoa) in two stages (November 2011 and July 2012). 

The removal from Rating Watch Negative reflect Fitch's opinion that the 
company's financial profile, on a consolidated basis, remains strong, even after
completing BRL2.1  billion  in  relevant acquisitions in the last 12 months. In 
July 2012 Taesa concluded a BRL1.755 billion equity issuance that, in Fitch's 
view, will allow the company to manage its financial leverage at levels 
commensurate with the 'BBB' rating. The rating action already incorporates most 
likely acquisition of stakes in 10 transmission assets from Cemig Geracao e 
Transmissao (Cemig GT) (National Scale Rating 'AA(bra)'), estimated to take 
place shortly, which should add BRL1.8 billion to the previous acquisitions.

Taesa's investment grade ratings reflect its strong and diversified power 
transmission assets, with stable and predictable consolidated cash flow and high
operating margins. Taesa's ratings also incorporate the low business risk of its
concessions, including those expected to be acquired by the company, most of 
which are not subject to periodical tariff reviews. Taesa's ratings are not 
constrained by the credit quality of one of its main shareholders, Cemig GT, 
since Cemig GT shares the company's control with an investment fund, and its 
access to Taesa's cash is limited to dividends.

Expectation of Gradual Leverage Reduction:

Fitch expects Taesa's consolidated net financial leverage close to 2.7 times (x)
(on a pro forma basis) in 2012, with gradual reductions to 2.3x in 2013, and 
2.0x in 2014, in case no new investments take place. The company's historically 
low consolidated leverage ratios, despite the substantial dividend pay outs in 
recent years, were more pressured after the first stage of asset acquisition 
from Abengoa. During the last 12 months ended on June 30, 2012, the company 
reported, under the Brazilian accounting BR GAAP, a total debt-to-EBITDA ratio 
of 4.8x and net debt-to-EBITDA ratio of 3.0x, which compare, respectively, with 
2.3x and 1.6x recorded in 2010. According to Fitch's calculations, after the 
events of capitalization and acquisition of the stakes in Cemig GT's assets and 
of the remaining part of Abengoa's assets, Taesa's net leverage was close to 
3.0x (on a pro forma basis).

Low Business Risk Assets:

Taesa's ratings are supported by its low business risk assets and low exposure 
to concession renewal risk. It is one of the largest electricity transmission 
companies in Brazil with 5,927 kilometers (km) of transmission lines throughout 
the country. The concessions for both Taesa's existing assets and those being 
acquired by the company have expiration dates that extend from 2030 on, which 
lowers the company's concession renewal risk. The company is in the process of 
acquiring participation which corresponds to 1,659 km of transmission lines from
Cemig GT, which should increase Taesa's asset diversification and dilute any 
potential operational risk of company's assets.

Taesa's exposure to tariff reviews is low, given that 12 out of its 13 operating
concessions and seven out of the 10 assets being acquired from Cemig GT were 
obtained before November 2006 and are not subject to periodic regulatory tariff 
review. Exposure to tariff review could increase as the company bids for new 
transmission concession projects in the country. According to Taesa's concession
agreements dated prior to November 2006, these concessions' permitted annual 
revenues (PARs) will decline by 50% after the 16th year of operation. The impact
of this decrease in company's cash flow generation should be mitigated by lower 
debt levels given that by the time revenue declines, debt used for construction 
of transmission lines should be fully amortized. Taesa benefits from a 
diversified client base and a secure payment structure.

Robust and Predictable Cash Flow from Operations:

Taesa's power transmission revenues are stable and highly predictable and are 
based on line availability rather than on volume transported. The concessions' 
PARs are adjusted annually for inflation. During the LTM ended June 30, 2012, 
the company reported consolidated net revenue and EBITDA of BRL1.012 million and
BRL896 million, respectively, based on Fitch's criteria and under BRGAAP. This 
translates into an EBITDA margin of 88.5%, which is high, yet characteristic of 
a transmission company. Considering the acquisitions, Fitch estimates an annual 
EBITDA of BRL1.7 billion. 

As long as Taesa does not obtain new projects to be developed, Fitch expects the
company's consolidated free cash flow (FCF) to be linked to higher or lower 
dividend payments, with a robust cash flow from operations (CFFO). However, the 
criteria adopted by IFRS for the cash flow statement have misled the analysis 
for the LTM ended on June 30, 2012. Company's CFFO and FCF were a negative 
BRL522 million and BRL1,483 million, respectively, reflecting the partial 
acquisition of Abengoa's assets. The FCF was also negatively impacted by the 
distribution of BRL955 million in dividends, above the historical levels, which 
comprised BRL333 million paid in October 2011, relative to retained profit 
reserves.

Manageable Debt Profile:

As of June 2012, Taesa reported total consolidated debt of  BRL4.310 million, 
and cash and marketable securities of BRL1.591 million. The high short-term debt
of BRL2.313 million was mainly reflecting the promissory notes outstanding 
balance of BRL2.151 million, with the last issuance proceeds, of BRL905 million,
still in the cash. The promissory notes roll over through the third debenture 
issuance places the short-term debt at very low levels. Although BRL904 million 
from the cash were used to pay the second stage of Abengoa's assets in July 
2012, the capitalization of BRL1.755 million brought significant cash 
reinforcement until the acquisition of participation in Cemig GT assets is 
completed.

 

Taesa's strategy is to use the cash for acquisitions only after short-term debt 
is lengthened. The debentures will mature within five to 12 years after the 
issuance, and should not put major pressures on the cash during this principal 
grace period. Once the third debenture issuance is concluded, Taesa will present
a long-term debt profile, with only BRL935 million of the existing debt maturing
until 2014. Fitch also expects strong short-term debt coverage, even after the 
expected acquisition, based on cash-to-short-term debt and cash+CFFO to 
short-term debt ratios above 3.5x and 6.0x, respectively.

Key Rating Drivers:

Negative rating actions could be triggered by a deterioration in Taesa's 
consolidated financial profile. Investments in relevant new projects with the 
risks associated with the construction phase and low profitability could also 
pressure the ratings. The IDRs could be positively affected by a strengthening 
of Taesa's financial profile with reduced financial leverage and a sustainable 
increase of its liquidity position.

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

Applicable Criteria and

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