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Fitch Affirms WPE International Coorperatief at 'B+'; Outlook Stable.

BUENOS AIRES, Argentina -- Fitch Ratings has affirmed the following ratings of WPE International Coorperatief (WPEI):

-- Foreign Currency Issuer Default Rating (IDR) at 'B+';

-- Local Currency IDR at 'B+';

-- US$390 million Senior Unsecured Notes due 2020, at 'B+/RR4'.

The Rating Outlook is Stable.

WPE International Coorperatief (WPEI) is a direct subsidiary of WPE, which in turn is wholly owned by Industrias Metalurgicas Pescarmona (IMPSA). WPEI notes are irrevocably and unconditionally guaranteed by IMPSA and WPE (IMPSA's Brazilian subsidiary) on a senior unsecured basis. The ratings reflect the creditworthiness of the guarantors. Fitch rates IMPSA at 'B+', while WPE is a fully owned subsidiary of IMPSA with strong operating, strategic and financial ties to its parent company. The 'B+' IDR assumes all WPEI's future debt issuances would be fully and unconditionally guaranteed by IMPSA, and will rank pari passu with IMPSA's senior unsecured debt.

IMPSA's 'B+' ratings reflect the positive trend for the company's long-term business fundamentals due to sustained global demand for hydro and wind power generating equipment. They also incorporate the company's growing business presence in Brazil and its sizeable backlog, which provides some certainty to the company's cash generation over the medium term. Balanced against these strengths are the company's high leverage, aggressive capital expenditure program and its backlog concentration on a few large projects in developing countries. A sudden downturn in key markets would negatively impact IMPSA's ability to develop new projects.

IMPSA's operations have a significant concentration in Brazil. For the latest 11 months to March 2012, 53% of revenues and 37.5% of EBITDA came from Brazil. The growth of the company's business in Brazil has reduced IMPSA's exposure to more volatile markets such as Argentina and has increased its access to multiple funding sources. This has reduced concerns about IMPSA's need to finance its working capital needs in Argentina should trading conditions in that market deteriorate. Additionally, it has enabled the company's foreign currency rating to exceed Fitch's 'B' country ceiling rating for Argentina. Going forward, it is expected that over 50% of IMPSA's total revenues will be generated by its Brazilian production facilities.

At March 2012, IMPSA's backlog was USD3.9 billion, with 78% in wind manufacturing, 74% in projects with third parties, and 45% in Brazil. The actual backlog shows an improvement from the USD3.16 billion during January 2011 and USD2.16 billion during January 2010. Given the long-term production cycle of IMPSA's developments (usually in the range of four years for hydro and 12-18 months for wind farms), this backlog level provides some certainty to the company's cash generation in the medium term. Existing power purchase agreements (PPAs) also contribute to the company's future revenue generating ability. By 2Q'12, IMPSA will finish building its second factory in Brazil which will double IMPSA's hydro capacity. Next year, the Recife Wind Factory will increase its capacity to 500 from 400 generators per year .

IMPSA's backlog concentration remains somewhat high, with five projects representing 55% of total backlog as of March 2012. The main project in the hydro equipment business unit is Belo Monte (Brazil), while main projects in the wind equipment unit are Arauco IV (Argentina) and Ceara III (Brazil).

The company's free cash flow (FCF) is anticipated to remain negative during 2012 and 2013 due to capital expenditures and growing working capital needs. Investments in the construction of wind farms are estimated at approximately USD500 million for FYE 2012 and USD625 million for FYE 2013. Much of the cash deficit will be funded with non-recourse, project financing to develop wind farm projects in Brazil.

Fitch expects IMPSA's total recourse debt to latest 12-month EBITDA ratio to remain above 4.0x, and decrease in accordance with the successful execution of the project backlog and the cash flow generation of the new energy projects in operation. As of March 31, 2012, IMPSA had USD1.279 million of total debt, of which USD384 million was structured as project finance. The total recourse debt-to-EBITDA ratio, estimated annualizing EBITDA for the 1Q'12, was 4.5x at March 2012 (3.8x at December 2011).

In 2010, IMPSA undertook a liability management program that included the creation of WPEI. Between September 2010 and March 2011, WPEI issued USD390 million notes due in 2020, which made up 43% of IMPSA's recourse debt at March 2012. These notes are irrevocably and unconditionally guaranteed by IMPSA and WPE on a senior unsecured basis. Through these issuances, IMPSA extended its debt average life to seven years from 2.4 years, as part of the proceeds were used to repurchase USD188 million out of the USD225 million in notes maturing 2014. Proceeds were also used to cancel short-term loans and finance CAPEX.

As of March 2012, IMPSA had USD48.4 million of cash and marketable securities, covering short-term recourse debt by 19%. The company is expected to meet its upcoming debt obligations with a mix of cash from operations and the rollover of existing debt. IMPSA has increased its Brazilian short-term credit lines up to USD200 million and has issued USD30 million in notes in the local capital market in June 2012. In December 2011, Santa Catarina Wind Farm (222 MW) started operations so IMPSA would improve its cash flow from either energy revenues or a possible sale of its participation in this project.

Potential Rating and Outlook Drivers:

The company's ratings could be downgraded or a Negative Outlook could be assigned if non-recourse financing increases above levels anticipated by Fitch. Additionally, any material performance problems that threaten future projects and cash flow, or a failure to comply with the terms for the operation of the wind farms (for which long-term PPAs have been signed with Eletrobras and the CCEE and are financed by BNDES) could also result in a Negative Outlook or downgrade.

Additional information is available 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' Aug. 12, 2011;

--'Liquidity Considerations for Corporate Issues' June 12, 2007;

--'Rating Corporates Above the Country Ceiling' August 8, 2005.

Applicable Criteria and Related Research:

Rating Corporates Above the Rating Ceiling

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=668909

Liquidity Considerations for Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

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Publication:Business Wire
Geographic Code:3ARGE
Date:Aug 7, 2012
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