Fitch Affirms Empresa Electrica Guacolda 'BBB' US$150MM Sr Secured Loan.

CHICAGO -- Fitch Ratings has affirmed the 'BBB' rating of Empresa Electrica Guacolda's (Guacolda) US$150 million senior secured loan participation certificates due on April 30, 2013 and the 'A+' Chilean national scale rating. The Rating Outlook for all these ratings remains Stable.

The US$150 million senior secured loan has an average life of 7.1 years with semiannual interest and principal payments, payable on April 30 and Oct. 31. It is secured by a one-year debt service reserve account, a six-month debt payment account (which accrues monthly), and a lien on the plant, site, and rights to receive payments under certain power purchase agreements (PPAs). The certificates rank pari passu with all other senior secured debt of Guacolda.

The ratings reflect Guacolda's competitive dispatch position supported by the efficiency and geographical location of its units, sound operating and commercial strategies, long-term supply contracts, growing electricity demand in the region, and acceptable projected debt service coverage ratios (DSCRs) under various stress scenarios. The rating also incorporates potential weaknesses, including exposure to fuel price increases, expiration of some of its supply contracts, and exposure to regulated energy prices.

During the first six months of 2004, Guacolda reported an adjusted EBITDA-to-interest expense ratio of 2.1 times (x) with total consolidated leverage, as measured by net debt-to-adjusted EBITDA of 5.3x, versus 2.6x and 4.7x, respectively, for the same period in 2003 (adjusted EBITDA adds back US$1.6 million of noncash expenses from the arbitrage process with Transelec). The deterioration in the credit protection measures was mainly the result of higher fuel prices, greater transmission costs, and a one-time noncash liability of the arbitrage process with HQI Transelec Chile, S.A., the main transmission company in Chile's central region. Guacolda ended second quarter 2004 with a cash balance of US$29 million.

Credit-protection measures should remain stable, primarily reflecting stable operating cash flows, low future capital expenditures, and a manageable amortization schedule. Guacolda should also benefit from an 18% increase in dollar terms of the node price starting in April 2004 for the semiannual period ending October 2004. Regulated sales under a node price contract represented approximately 41% of Guacolda's total energy sales in 2003. Node prices are expected to continue increasing to reflect the higher average fuel prices, the effect of natural gas restrictions from Argentina, the delay of new generation projects, and the inclusion in the National Power Plan of new power projects based on alternative fuel sources from natural gas.

Positive for Guacolda, the sector authorities are discussing a change in the distribution of the capacity payments, a payment made to all generators in the system for making generating capacity available. The new distribution payment is expected to encourage the use of alternative fuel sources other than natural gas in the generation process. It is expected that hydro and coal generation should be the most benefited by this change.

Through June 2004, Guacolda generated 1,187 GWh, versus 1,134 GWh through June 2003 representing a 5% increase. The company's generation levels should continue increasing due to the efficiency of its units, which improves its dispatch position, the effect of the natural gas restrictions and the faster than expected energy demand growth.

Guacolda is a Chilean electric-generating company that operates a 304-MW coal-fired plant (two 152-MW units) in Huasco, which is located in the third region of Chile, 710 km north of Santiago, in the northern part of the SIC. Guacolda is owned by Gener (50%, rated 'BB' by Fitch), COPEC (25%, rated 'BBB+' by Fitch), and Ultra Terra (25%).