S&P Lowers Edelnor Rtgs to 'CCC'; On Watch Negative.
NEW YORK--(BUSINESS WIRE)--Standard & Poor's
March 20, 2001--Standard & Poor's today lowered its senior-unsecured debt and corporate credit ratings on Empresa Electrica del Norte Grande S.A. (Edelnor) to triple-'C' from single-'B', and placed the ratings on CreditWatch with negative implications. Standard & Poor's may further lower Edelnor's ratings pending ongoing conversations with Edelnor's management.
Edelnor generates and transmits electricity in the northern interconnected system (SING), Chile's second largest electrical grid. Mirant Corp. (triple-'B'-minus/Stable/'A-3'), a subsidiary of Southern Co. (single-'A'/Stable/'A-1') owns 82% of Edelnor.
The downgrade reflects:
-- Debt financing at the NorAndino gas pipeline project did not take place as forecasted (anticipated US$30 million cash flow to Edelnor); -- Uncertainty over Edelnor's ability to meet its financial obligations in 2001; -- The likelihood of default in the first quarter of 2002; -- Worse-than-anticipated operating performance resulting in coverage ratios below expectations; -- The anticipated loss of significant contract revenue at the end of 2001; -- Uncertainty about Edelnor's ability to keep and attain new sales contracts or sell into the spot market considering the competitive disadvantage generated by regulatory prohibitions on the use of petroleum coke fuel; and -- The entry of gas and gas-fired plants, which has created overcapacity in the SING grid.
Edelnor was to receive US$30 million from a debt issuance at its gas pipeline subsidiary, NorAndino, and in this way reduce Edelnor's equity investment in the project. However, this financing did not take place. The elimination of this expected cash influx is pivotal to Edelnor's current cash flow crunch, and makes Edelnor even more vulnerable in 2002 as it will lose the Emel distributors' contracts at the end of 2001. The Emel contracts account for roughly one-half of contracted capacity.
The loss of these contracts coincides with the entry of lower marginal cost, gas-fired facilities, which have doubled installed capacity in the SING. Because most large customers have already procured firm supply, there is little opportunity for Edelnor to replace these customers in the SING.
While Edelnor is expected to be able to meet its financial obligations in the first half of 2001, this will only be possible with the aid of a US$6 million fund set aside for Edelnor, and made available by its Chilean parent, Mirant Chile S.A. The purpose of this fund is to help Edelnor work through minor cash flow difficulties due to timing. Edelnor recently accessed the fund for the first time (approximately US$1.5 million). Mirant Corp., the U.S. parent, has stated its willingness to provide minor amounts to cover timing issues during the year, but has no plans to inject long-term funding. It is not clear whether Edelnor will be able to meet its financial obligations in the second half of the year without the aid of Mirant. Furthermore, without revenues from the Emel contracts and expected narrowing margins on sales of coal-powered energy, and barring any additional aid from its parent, it will be exceedingly difficult for Edelnor to meet its scheduled interest payments in March 2002. This assumes Edelnor does not win its appeal to the national environmental regulator (CORAMA) to use pet coke, a more efficient fuel, in its coal plants, which might enable the coal plants to be dispatched more often. Even if Edelnor wins its appeal, however, which may take place in the second half of 2001, it will only marginally improve Edelnor's ability to meet its financial obligations in March 2002, Standard & Poor's said. -- CreditWire
Copyright 2001, Standard & Poor's Ratings Services