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Fitch Assigns Ashmore Energy International 'BB' IDR.

CHICAGO -- Fitch Ratings has assigned the following ratings to Ashmore Energy International (AEI), with a Stable Outlook:

--Issuer Default Rating (IDR) of 'BB';

--Proposed US$1 billion senior term loan ;

--US$500 million senior revolver credit facility 'BB'.

Proceeds will be used to refinance US$1 billion of existing senior bridge loan facilities associated with the acquisition of Prisma Energy International (Prisma Energy) in a two-stage transaction that was completed in September 2006. The US$1 billion senior term loan will be secured by equity shares of AEI's top level holding companies. A portion of the term loan (US$300 million) will amortize on a straight-line basis over the seven-year term (US$42 million annually) with the remainder (US$700 million) due at maturity, as well as a fully committed, five-year revolver of US$500 million to fund working capital and general corporate needs.

The ratings reflect a solid portfolio of energy companies with predictable cash flow and moderate leverage. The assets are focused in three primary lines of business including: electric distribution, power generation, and natural gas distribution and transportation. AEI's assets consist of 16 energy companies in which AEI has direct or indirect control of the operation, as well as three minority stakes. All of the assets are operating and generally performing well. AEI's operating assets have a relatively stable base of revenues and cash flows as more than 90% of its revenues are either from contracted Power Purchase Agreements (PPAs) or from regulated energy businesses. Contract and regulated revenues and cash flows tend to be more stable and have lower business risk. Contracted revenues from long-term PPAs are primarily with government-owned off-takers. In addition, AEI has an experienced operating management team.

Cash flows are geographically concentrated in Brazil (rated 'BB', with a Positive Outlook by Fitch) and more generally in Latin America. From a portfolio standpoint, 87% of consolidated cash flows can be attributed to companies located in Latin America and 64% of consolidated cash flows are derived from Brazilian assets. Cash flow is concentrated in non-investment-grade countries and is generally rated in the 'BB/BB-' range. Additionally, AEI's cash flow is concentrated in five key assets: Elektro (Brazil), Cuiaba (Brazil), San Felipe (Dominican Republic), Promigas (Colombia), and Trakya (Turkey). The largest cash flow contributor is Brazilian power distribution company, Elektro, which at the end of fiscal 2006, represented 43% of consolidated EBITDA and approximately 55.3% of AEI's dividend cash flow. Elektro is a moderately low risk electric distribution business serving 1.9 million customers in the State of Sao Paulo. Elektro operating company leverage is low, with net debt to EBITDA of 1.1 times (x) for fiscal year-end 2006. Concentrations somewhat limit the benefits of diversification.

AEI is moderately leveraged with debt and cash flow levels consistent with the rating category. Leverage as measured by consolidated debt to EBITDA is currently around 3.7x. Consolidated debt approximates US$2.5 billion and consolidated EBITDA is currently estimated to be between US$650 million-US$675 million; the company also generates an additional US$100 million-US$125 million in interest income from current cash balances. Over the next few years, leverage is expected to trend lower as total consolidated debt to EBITDA should drop below 3x by 2010.

AEI's liquidity is strong as exemplified in both cash flow to debt service coverage and net debt to EBITDA ratios. Healthy levels of consolidated cash (approximately US$1 billion), as well as the $500 million revolver, permit the company to weather any potential downturns in the business, and will enable the company to continue to carry out strategic initiatives. Fitch expects that the company will continue to maintain sufficient cash on the balance sheet to provide adequate liquidity in the business for future investment purposes. AEI anticipates that parent company balance sheet cash will decrease to approximate US$800 million by fiscal year-end 2007 and then continue to build absent any additional investment.

Parent-level free cash flow is solid and at levels sufficient to manageably service debt. Dividends and other cash flows (after withholding and other transfer taxes) from the operating companies to the holding company should exceed US$450 million annually over the next several years. Parent company debt currently totals US$1.6 billion and consists of US$976 million of senior term loan and approximately US$560 million of payment-in-kind (PIK) notes. Parent company debt is expected to gradually increase as the par value of the subordinated PIK notes increases. Parent company debt service (interest and principal amortization) is expected to be approximately US$125 million. Over the next several years free cash flow to debt service should remain stable, ranging between 3.0x-3.5x.

The ratings incorporate the structural subordination of the bank facility to operating company debt. Parent company debt of US$1.6 billion represents 62% of consolidated debt; Elektro third-party debt is US$417 million or 17% of consolidated debt. Total consolidated debt of $2.5 billion is balanced between the operating and parent company at $929 million and $1.5 billion, respectively. Consolidated EBITDA for fiscal 2006 is estimated to be between US$650 million-US$675 million; current interest income is running between US$100 million-US$125 million annually. Operating company debt is generally funded in local currencies, reducing foreign exchange risk. The term loan and revolver are structurally subordinate to operating company debt and rely on dividends from the key assets. Parent company debt also includes US$560 million of subordinate PIK notes which have limited acceleration rights. Over the medium term, projected 2008 dividend cash flows to AEI are expected to cover debt service by slightly more than 4x on average.

Ashmore Energy International (AEI) owns and operates a portfolio of energy infrastructure assets in power generation, transmission, and distribution of natural gas, gas liquids, and electric power. AEI's portfolio, directly or indirectly, consists of 19 companies in 14 countries, most of which are located in Latin America. The company's largest asset is Brazilian electric distribution company, Elektro, which represents approximately 43% of EBITDA, and 55.3% of fiscal 2006 consolidated cash flow to parent company AEI. Consolidated revenues and EBITDA are approximately US$2.5 billion and US$650 million-US$675 million, respectively. Consolidated debt and balance sheet cash are expected to be US$2.5 billion and US$1.0 billion, respectively, at fiscal year-end 2006.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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Publication:Business Wire
Date:Feb 23, 2007
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