S&P Rates Chilquinta Energia Finance Co Notes 'AAA'.

Business Editors

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

March 5, 2001-- Standard & Poor's today assigned its triple-'A' rating to Chilquinta Energia Finance Co. LLC's (CEFC) US$120 million senior-secured notes due 2008 and US$200 million senior-secured notes due 2011. The notes are also assigned a Standard & Poor's underlying rating (SPUR) of triple-'B'. The outlook is stable.

At the same time, Standard & Poor's has assigned a triple-'B'-minus corporate credit rating to Chilquinta Energia S.A. The outlook is stable.

The triple-'A' rating reflects an unconditional and irrevocable guarantee of payment of scheduled interest and principle on the notes provided by MBIA Insurance Corp. (triple-'A'/Stable--).

The SPUR reflects structural features incorporated into CEFC's financing documents and the corporate credit rating of Chilquinta Energia S.A. The structural features include a payment mechanism designed to mitigate Peruvian transferability and convertibility risk and to mitigate structural subordination issues, and a contingent capital mechanism of US$50 million that will remain in place for the term of the issue. Chilquinta Energia S.A.'s corporate credit rating of triple-'B'-minus is based on the low risk of its Chilean electricity distribution operations; the risks entailed in its 37% ownership of Peruvian electricity distributor Luz del Sur, which exposes the company's earnings and cash flow to operations in a country with a double-'B'-minus foreign currency rating; and an adequate financial profile given Chilquinta Energia's overall business risk profile. Although MBIA will ultimately guarantee payment to the noteholders, the ability of CEFC to make payments on the notes depends principally on the cash flow generated by Chilquinta Energia and Luz del Sur.

CEFC is a limited-purpose Delaware statutory business trust owned 50% by Sempra Energy and 50% by PSE&G Energy Holdings Inc. The proceeds of the issuances will pay down existing loans, which were put in place to consummate the acquisition of interests in Chilquinta Energia and Luz del Sur by Sempra Energy and PSE&G Energy Holdings Inc.

Chilquinta Energia, Chile's third largest electricity distributor, services more than 450,000 customers, covering most of Chile's Vth Region (northwest of the Santiago metropolitan area). Chilquinta Energia supplies approximately 9% of energy demand in Chile. Luz del Sur, Peru's second largest distributor, services more than 680,000 clients in the southern part of Peru's capital, Lima, and accounts for 23% of electricity volume sales in Peru.

Chilquinta Energia benefits from monopoly electricity distribution operations in the supportive regulatory environments of Chile and Peru. The company's profile is also enhanced by the favorable outlook for Chilean energy consumption, which is based on expectations of continued robust energy demand growth of approximately 8% annually; Chile's relatively low per capita energy consumption; and affordable electricity prices.

Outside Chile, Chilquinta Energia maintains a 37.3% controlling interest in Luz del Sur. Luz del Sur operates in a regulatory framework closely modeled after the Chilean regulatory system. In addition to its holdings in the electricity sector, Chilquinta Energia is engaged in Chile's nonregulated natural gas distribution sector through its 100%-owned subsidiary Energas (26% of Chilquinta Energia's assets), which provides services in Chile's Vth region.

In 2000, Chilquinta Energia's debt and interest expense are expected to increase to approximately ChP200 billion (about US$350 million) and ChP20 billion, from ChP184 billion and ChP17 billion, respectively, as a result of investments in Energas, and a 7.5% devaluation of the Chilean peso (90% of the company's debt is in U.S. dollars). Funds-from-operations (FFO) interest coverage, however, is expected to increase from 2.9 times (x) in 1999 to about 3.3x in 2000, as increased interest expense is offset by higher revenues. FFO is expected to remain stable for the next two years with moderate improvements expected in later years.

OUTLOOK: STABLE

The stable outlook reflects expectations that Chilquinta Energia's management will maintain the company's current financial profile and not significantly increase the company's operating risk and exposure in noninvestment-grade countries. Profitability and growth from Chilean operations are expected to outpace Peruvian operations, based on Standard & Poor's assumption that the Chilean utilities will continue to benefit from higher growth rates.--CreditWire