Fitch Dwngrs Hidroelectrica Piedra del Aguila S.A.

Business Editors

Fitch Ratings has downgraded the foreign and local currency ratings as well as the ratings of the trust notes of Hidroelectrica Piedra del Aguila S.A. (HPDA) to 'DD' from 'C'. The ratings have been taken off Rating Watch Negative.

The rating action follows HPDA's failure to pay approximately US$9.8 million of interest, plus ARP1.1 million with Banco Nacion due June 30, 2002. The company also did not make its minimum US$4.9 million principal payment on the series I bonds; the other principal obligations were permitted to be deferred under the terms of the loan agreements. On June 28, 2002, HPDA informed CNV of its intention to defer the payments due on June 30, 2002 of interest and principal of all its series of bonds issued plus Banco Nacion debt service. The specific payments that have been deferred are as follows: principal and interest on series I of US$8.0 million; interest on series II of US$4.1 million; principal and interests on series III of US$4.3 million; interest on series IV of US$1.6 million; and Banco Nacion principal and interest of ARP$6.0 million. The company is expected to begin restructuring its obligations to provide additional flexibility in debt service given the current situation in Argentina and the utility sector.

Given estimated cash balances and cash generation, it appeared that HPDA would not have sufficient funds to pay the entire required June 30, 2002 maturities of US$14.7 million plus the ARP1.1 million due to Banco Nacion, although cash may have been sufficient to pay interest only. Even so, the company would have been in default, which likely prompted the decision to defer all payments and maintain a positive cash position to fund operations. At March 31, 2002, HPDA had a cash balance of approximately ARP28 million and reported EBITDA for the first quarter of approximately ARP15 million. Assuming comparable EBITDA for the second quarter, cash balances may have reached approximately ARP43 million. Looking forward, the cash crunch will continue until electricity tariffs and spot prices are permitted to increase.

At present the generation companies, including HPDA, are attempting to negotiate a return to the previous tariff scheme of cost declarations and spot prices being declared in U.S. dollars. Currently, prices and costs are declared in Argentine pesos. The change in regulations had been made by the ENRE. The goal is to recover the already lost economic equilibrium. The outcome or timing of negotiations is uncertain.

HPDA is the largest private hydroelectric generator in Argentina. The company holds a concession until Dec. 29, 2023, from the Argentine government to operate its hydroelectric facility and for the generation and sale of electricity. HPDA is located approximately 1,200 km southwest of Buenos Aires on the Limay River.