Fitch Ratings Upgrades Electricidad de Caracas.

Business Editors

NEW YORK--(BUSINESS WIRE)--July 2, 2003

Fitch Ratings has upgraded the senior unsecured foreign currency ratings of C.A. La Electricidad de Caracas (EDC) to 'B-' from 'CCC+' and its senior unsecured local currency rating to 'B' from 'CCC+'. The ratings are removed from Rating Watch Negative and assigned a Stable Rating Outlook.

The rating actions follow Fitch's upgrade of the Bolivarian Republic of Venezuela's long-term foreign currency rating to 'B-' from 'CCC+' and its long-term local currency (Venezuelan bolivar) rating to 'B-' from 'CCC+'. The sovereign actions reflect the government's success in getting oil production back up to levels achieved prior to the national strike earlier this year, thereby relieving public financing pressures. In addition, voluntary domestic debt swaps and recent external bond payments have mitigated concerns about the sovereign's near-term debt service willingness.

EDC has demonstrated positive results on several issues despite facing severe economic and political volatility during the first quarter of 2003. The company has been successful in repaying and rolling over maturing debt obligations despite the imposition of foreign exchange controls January 2003, refinancing approximately US$128 million through May 2003, and reducing total debt to US$743 million at March 31, 2003 from US$794 million at December 31, 2002. On the regulatory side, EDC was granted its pre-arranged tariff increases equating to an average increase of 26%, which was phased in over the first three months of the year. The next tariff adjustment should come in July 2003, but realization of full adjustments is uncertain in the current environment. Positively, in the past, EDC has successfully negotiated with the government to reduce the effect on earnings of any delay in tariff adjustments.

Operationally, the company reported a 4% contraction in revenues, which was more than offset by lower operating expenses, resulting in a 5.5% increase in EBITDA to Bs.109 billion, and an increase in EBITDA margin to 57.3% from 52.1% during the first quarter of 2002. Although total debt and interest rates were lower during the first quarter of 2003, the net effect of the devaluation on the US dollar denominated interest expenses resulted in a 15% increase. Nevertheless, EDC reported an improvement in EBITDA-to-interest to 2.9 times (x) from 2.4x through December 2002. Strategically, the company is also a net exporter to the national electricity grid, which has helped the country offset supply shortages outside of Caracas.

EDC faces additional maturities of US$138 million for the remainder of the year. Fitch expects that EDC will attempt to make foreign payments via CADIVI as a primary source of US dollars to pay debt service.