Fitch Ratings Affs Empresa Electrica Guacolda S.A. At 'BBB'.

Business Editors

CHICAGO--(BUSINESS WIRE)--May 15, 2002

Fitch Ratings has affirmed the 'BBB' foreign and local currency ratings of Empresa Electrica Guacolda S.A. (Guacolda). The assigned ratings reflects Guacolda's sound operating strategy, solid competitive position, stable cash flow generation ability, and constructive regulatory environment.

Guacolda's ongoing strategy has been to stabilize revenue streams and reduce competitive risks by entering into long-term contracts for most of its firm capacity, primarily with mining and industrial companies located near its generation facilities in northern Chile. At present, an estimated 85% of the company's total capacity is committed under contract, with average terms of 10 years. The balance of Guacolda's capacity is sold in the spot market.

Although the negative effects of low copper and gold prices are stagnating growth in Northern Chile, the favorable competitive position of the region's mines helps to mitigate the risks associated with exposure to cyclical mining and cooper refining industries. In addition, residential electricity demand in the region has been fueled by the emergence of La Serena and Coquimbo as popular vacation destinations. According to the terms of its agreement with power distributor Empresa Electrica EMEC (EMEC), Guacolda will serve the northern region until 2015. During this period, demand growth in the Norte Chico region is projected to grow at a compounded annual rate of six percent.

Guacolda's generating units are two of the lowest marginal cost coal-fired facilities in the Sistema Interconectado Central (SIC), each with 152 MW capacity. The units are in excellent condition, having recently completed their general maintenance cycles. The company's geographic location, which allows it close proximity to customers, provides Guacolda with a cost advantage relative to other generators located in the south, including the combined cycle gas-fired plants located near Santiago. Additional competitive advantages include a low fuel transportation cost profile not subject to the restrictions of the fix contract associated with gas generation facilities, alternative storage of coal near the plants, flexibility in supply contracts, and no exposure to pipeline failure risk, as in the recent NoraAndino pipeline case.

Over the medium term, increasing energy generation is expected to strengthen Guacolda's operating results and cash flows. The increase is attributed to the completion of scheduled maintenance. In the last two years, one of generation units was offline for 55 days for scheduled maintenance. The refurbished 152MW coal units will increase dispatch, as production costs will be more competitive due to a cheaper and more efficient fuel mix (i.e., petcoke versus coal).

In the first quarter of 2002, Guacolda had operating revenues of US$24 million and US$10 million of EBITDA and US$215 million of debt. These figures translated into a total debt-to-EBITDA ratio of 5.5 times (x) and an EBITDA-to-interest expense ratio of 2.4x. As noted, increasing power generation during 2002 should strengthen credit protection measures and financial flexibility, solidifying its position with in assign 'BBB' credit rating. Guacolda is in the process of refinancing upcoming maturities of US$100 million. Fitch believes that management will continue to decrease Guacolda's leverage as cash flows permits.

Guacolda is a Chilean electric generating company operating a 302MW coal-fired plant located in Huasco, third region of Chile, 710 kms to the north of Santiago, in the northern part of the SIC. Guacolda is owned by Gener S.A. (50%, Fitch rated 'BBB-'), Copec S.A. (25%, Fitch rated 'BBB+') and Ultra Terra (25%).