S&P Assigns 'BB+' Rating to EDES.

Business Editors

NEW YORK--(BUSINESS WIRE)--Standard & Poor's

June 8, 2000--Standard & Poor's today assigned its double-'B'-plus corporate credit rating to Empresa Distribuidora de Energia Sur S.A. (EDES), an electric distribution company that serves approximately 140,000 customers in a service area that comprises the southern portion of the province of Buenos Aires. The outlook is stable.

The rating incorporates the challenges of operating in Argentina and the relatively high regulatory risk. Among the challenges to be faced by EDES is a tariff for residential users that will be adjusted downwards in the period from 1999 to 2002 (by approximately 30%) and then reduced by 1% per year by an efficiency factor from 2003 to 2007. The tariff transition period represents a decrease in revenues for EDES, and its negative impact is expected to be offset by higher consumption of electricity and further cost reductions. Annual sales growth of 4% is anticipated over the next four years. These risks are partially offset by the 95-year exclusive distribution concession to serve an attractive service area in the province of Buenos Aires; a 10-year tariff from 1997 to 2007, calculated in U.S. dollars, that is adjusted for U.S. inflation, and the pass-through of energy costs to customers. EDES also benefits from stable and profitable sales to the residential sector, which accounted for 82% of gross profits in 1999 and by positive growth in demand. In 1999, EDES' residential sales volume increased 4.4%, despite the approximately 3% decrease in Argentine GDP.

EDES has a weak financial position when adjusted for debt at the holding company-a subsidiary of its two ultimate parent companies. While debt leverage is low (15.7% at December 1999), funds from operations interest coverage was only 1.6 times (x) in fiscal 1999. Going forward, the interest coverage ratio is expected to approach 3x by 2003.

EDES was privatized in 1997, when a 90% economic interest was awarded to AESEBA S.A, which is 56.66% owned by The AES Corp., and 33.34% owned by PSEG Operating Argentina S.A., which is in turn owned by PSEG Global Inc. The remaining 10% is owned by EDES employees. EDES' operator is PSEG, according to a 15-year contract that lasts until 2012. OUTLOOK: STABLE The outlook incorporates EDES' financial improvement, mainly based on the steady growth of residential demand, which is projected to offset the decrease in rates, Standard & Poor's said. -- CreditWire

Copyright 2000, Standard & Poor's Ratings Services