Fitch Rates ENERGIPE, SAELPA and CELB Proposed Notes Units Issuance 'BB-'.CHICAGO & RIO DE JANEIRO Rio de Janeiro, city, Brazil Rio de Janeiro (rē`ō də zhänā`rō, Port. rē`  thĭ zhənĕē`r , Brazil -- Fitch Ratings Fitch RatingsAn international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has assigned a 'BB-' rating to the proposed US$250 million notes units offering of Empresa Energetica de Sergipe S.A. (ENERGIPE), Sociedade Anonima de Eletrificacao da Paraiba (SAELPA), and Companhia Energetica de Borborema (CELB CELB Center for Environmental Leadership in Business ). Each US$2,000 note unit will consist of US$1,300 in principal amount of perpetual senior notes to ENERGIPE, US$600 in principal amount of perpetual senior notes to SAELPA, and US$100 in principal amount of perpetual senior notes to CELB. The note units and underlying perpetual senior notes of the three entities will be guaranteed by their holding company, Energisa S.A. (ENERGISA). While the notes units' underlying securities are separate, standalone indebtedness of each entity, the perpetual senior notes are nondetachable and contain cross-default provisions. The notes are callable Callable Applies mainly to convertible securities. Redeemable by the issuer before the scheduled maturity under specific conditions and at a stated price, which usually begins at a premium to par and declines annually. beginning 2011. Fitch's rating reflects the combined credit quality of all three issuers and their guarantor given the notes' cross-default provision and nondetachable characteristics. The rating is supported by improving credit-protection measures at ENERGIPE, SAELPA, and CELB, and on a consolidated basis, at ENERGISA, which should continue to strengthen over the next year, supported by projected growth in operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. and cash flow and the reduction in annual debt service following the proposed issuance. The companies should also benefit from the improved outlook for the Brazilian regulatory environment and sufficient tariff adjustments. Energisa operates in the regulated distribution market with long-term contracts with generators. While regulatory risk remains an ongoing credit concern, the current electric energy industry model is generally positive and should support growth and stability in the sector. The company is in the process of reorganizing its corporate structure as required by the Brazilian New Industry Model Law, which Fitch has incorporated into the rating. Following the reorganization expected to be completed by October 2006, ENERGISA will have additional operating assets Operating Assets Another term for working capital. , including Companhia Forca e Luz Cataguazes Leopoldina, as well as a small portfolio of generation assets. The inclusion of these additional assets should not materially change the consolidated credit protection measures or overall credit quality of the guarantor, ENERGISA. The credit profiles of ENERGISA, ENERGIPE, SAELPA, and CELB are further supported on a combined basis by their large, diversified and stable customer base. Average consumption growth in the service territories of the three operating companies has exceeded the national average over the past three years. Future improvement in operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. should also benefit from improving operating efficiencies and a more favorable economic environment. Consolidated leverage at ENERGISA, as measured by debt-to-EBITDA, is moderate at 2.8 times (x) and acceptable for the assigned rating of the notes. On a pro-forma basis, Energisa reported on a consolidated basis total debt of US$712 million, including the debt at the three issuing subsidiaries. The proposed perpetual bond Perpetual Bond A bond with no maturity date. Perpetual bonds are not redeemable but pay a steady stream of interest forever. Some of the only notable perpetual bonds in existence are those that were issued by the British Treasury to pay off smaller issues used to finance the issuance will materially reduce refinancing risk at the companies, lower interest costs, and allow the group to delever through near-term amortization of outstanding structured debt and through further growth in EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become and equity. ENERGISA is a holding company for the three electricity distribution companies issuing the notes units, ENERGIPE, SAELPA, and CELB. The distribution companies serve approximately 1.5 million customers distributing 4,351 GWh in 2005 in the Northeast Brazilian States of Sergipe and Paraiba. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. 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 Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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