Fitch Affirms Fortuna's Rating at 'BBB-'; Outlook Stable.

CHICAGO -- Fitch Ratings has affirmed the 'BBB-' rating assigned to Empresa de Generacion Electrica Fortuna S.A.'s (Fortuna) senior notes due 2013. Fitch has also affirmed Fortuna's local and foreign currency ratings at 'BBB-'. The Rating Outlook is Stable.

The ratings reflect Fortuna's position as the largest hydroelectric plant in Panama; its competitive dispatch priority, supported by a large storage reservoir; a sound operating strategy to optimize contract electricity sales; its acceptable projected debt-service coverage under various stress scenarios; and absence of foreign-exchange risk. The rating also incorporates potential weaknesses, including exposure to hydrology, commodity price risks, exposure to regulatory considerations and potential for long-term competitive price pressures.

Fortuna is well-positioned to avoid significant exposure to variations in hydrology due to its large storage reservoir and acceptable commercial strategy. Fortuna's revenues in 2005 were higher than expected primarily due to prevailing spot market prices influenced by increases in the price of fuel, higher contract prices and higher contract levels (185MW vs 174MW). The spot market price during the year fluctuated between an average of $44.59 per megawatt hour (MWh) for the month of January 2005 and an average of $120.44 per MWh for December 2005. The average spot market price for the year was $81.88 per MWh compared to an average of $56.4 per MWh in 2004. The higher spot prices generally reflected the increased fuel cost for thermoelectric generation, below average hydrology, continued demand growth and a tighter supply / demand balance due to lack of new generation capacity. This situation was compounded by the system's greater than optimal dispatch of hydroelectric resources. Until material new capacity comes online, the condition of higher spot prices is expected to continue to reflect fuel cost increases and variability in hydrology. Certain market participants have announced new planned generation capacity for the market, but these projects are not likely to be completed before 2010.

Fortuna currently has power purchase agreements (PPAs) in place with two of the local distribution companies in Panama for the next four years (284 megawatts (MW) in 2005, 260 MW in 2006, 185 MW in 2007 and 224 MW in 2008). Fortuna has been recently awarded contracts with EDEMET for 120MW for 2009 through 2012 and with Elektra Noreste for 80 MW for 2009 through 2012 and 120MW for 2013 through 2018. Fortuna's contracted position adds a measure of stability and predictability to the cash flows of the company and limits the company's exposure to variable spot market sales prices, but could result in periodic energy purchases to fulfill its contracts.

The company's 2005 EBITDA-to-interest ratio of 5.9 times (x) is strong for the rating category and industry averages and reflects current market conditions. EBITDA margins have increased temporarily to 76%, due to sufficient hydrology at Fortuna and high spot prices, but historically range in the low 60%. Recent credit protection measures are considered solid for the rating category.

The company has low leverage with a debt-to-EBITDA ratio of 1.5x and minimal refinancing risk. Total outstanding debt of $147.2 million at Dec. 31, 2005 is comprised solely of the international bond, which has amortized from its original $170 million balance in 2002. Fortuna's notes have a debt service of $27.4 million per year. Projected debt-service coverage ratios (DSCRs) are acceptable for the rating category, considering the risk profile of the company, the characteristics of the current PPAs, the intrinsic characteristics of the Panamanian market and the results of sensitivity cases.

The rating of Fortuna is not constrained by the sovereign rating of Panama, as access to foreign exchange-the key determinant of external creditworthiness-is not limited by finite foreign-exchange reserves or controls. Panama's track record of using the U.S. dollar and allowing private-sector debt repayment during periods of sovereign default allows entities in Panama to be rated above the 'BB+' sovereign rating and up to a country ceiling of 'BBB', based on the underlying corporate credit rating of the entity.

Fortuna is a hydroelectric generating company located in the western portion of Panama. The company has an installed capacity of 300 MW and generated 1,775 GWh in 2004 and generated 1,652 GWh during 2005. Fortuna is 49% owned by AGC, which currently is indirectly owned by Hydro-Quebec (50.1%) and El Paso. (49.9%). The Panamanian government owns an additional 49.9% of Fortuna, with employees owning the remaining 1.1%. On Jan. 13, 2006, El Paso entered into a Purchase and Sale Agreement with Globeleq, pursuant to which El Paso agreed to sell its indirect ownership in AGC, Fortuna's 49% shareholder, to Globeleq. The transaction is expected to close in early second quarter 2006 and is not expected to have a major impact on Fortuna's credit profile. The Globeleq - El Paso transaction includes ownership interests in six power plants located in El Salvador, Nicaragua, Panama and Dominican Republic for an aggregate amount of $141 million.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.