Fitch Downgrades Electroandina to 'BB'; Stable Outlook.

CHICAGO -- Fitch Ratings has downgraded the senior unsecured local and foreign currency ratings of Electroandina S.A. (Electroandina) to 'BB' from 'BB+'. Fitch has also revised the Rating Outlook to Stable from Negative. E[acute accent]The downgrade reflects a continued deterioration in credit protection measures and short-term liquidity concerns. The material reduction in the company's credit protection measures is primarily the result of lower than expected operational results, which have been hurt by external variables such as the severity of natural gas restrictions from Argentina and the evolution of the energy fuel prices, mainly coal and diesel prices. The company also faces amortizations of US$21.5 million in 2005 and US$41.5 million in 2006 and 2007. E[acute accent]However, Electroandina's credit profile continues to be bolstered by the inherent support from its controlling shareholder, Suez Energy Andino S.A. (affiliate of Suez Tractebel S.A.), and additional shareholder, Corporacion Nacional del Cobre de Chile (CODELCO). Both of the shareholders have actively participated in the capital structure of the company in the form of subordinated debt guarantor and direct loans. This shareholder support is in addition to that demonstrated in mid-2004 when Codelco accepted to temporarily revision of the tariffs to its Chuquicamata PPA in order to share the burden of the Argentinean gas crisis with its energy provider, Electroandina. Currently, the company is in the process of renegotiating its US$122.6 million syndicated bank loan with ABN AMRO, in an attempt to extend the maturity of this debt beyond 2007. Conversations with the banks are at an advanced stage and a final decision is expected by the end of June 2005. E[acute accent]Electroandina reported revenues and EBITDA of US$228.8 million and US$25.4 million in 2004, respectively. EBITDA covered interest by 2.9 times(x) for both 2004 and 2003. Although the company reduced debt by US$15.7 million in 2004, total consolidated leverage ratio as measured by debt (excluding subordinated debt)-to-EBITDA increased to 4.3x in 2004 versus 3.7x in 2003. Going forward, Electroandina's EBITDA is expected to remain close to the 2004 levels, depending on the same variables previously mentioned. However, the continued growth in the region, the expansion of mining activities, and new contracts that reflect the existing market conditions may contribute to increased cash flow in the future. E[acute accent]Electroandina is the largest generator in Chile's northern interconnected transmission system and the third largest overall with installed capacity of 1,028 MW, including the recently constructed 400 MW Tocopilla combined-cycle unit which began commercial operations in February 2001. The company is owned by Inversiones Tocopilla Ltda, which has management control, and Codelco. Inversiones Tocopilla is controlled by Suez Energy Andino S.A., which is 100%-owned by Suez-Tractebel. Suez-Tractebel S.A. is an experienced operator and has a proven track record of successfully operating private electric utilities worldwide.