Fitch Ratings affirmed the Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) of
Rating actions affect the international and domestic senior secured notes due 2027 and 2040, respectively. The Rating Outlook is Stable.
Cochrane's ratings reflect the solid structure of its long-term commercial agreements with strong counterparties, which allow the company to generate predictable cash flows. The company's power purchase agreements (PPAs) have an average life of 12 years and provide stable, fixed monthly capacity charge payments. The PPAs also allow for the pass-through of variable costs to counterparties.
Key Rating Drivers
Strong PPAs: Cochrane's long-term commercial agreements with competitive Chilean miners and fertilizer producers result in predictable cash flows. The PPAs average 12 years with stable, fixed monthly capacity charge structures and allow for the full pass-through of variable costs, including fuel and nonfuel costs, and certain regulation changes. Cochrane is 100% contracted with the PPA structure until 2030, then goes to 79% until 2034 and 26% in 2037.
Stable Cash Flows: Fitch expects Cochrane to generate positive FCF, derived from its PPAs stable cash flows. The company reported positive FCF of
Leverage to Decline: Cochrane's international notes started amortizing during 2020, period where the company registered a total debt to EBITDA of 5.0x. Expected EBITDA leverage is 3.6x by 2023 and around 3.0x during 2024-2026, continuing the deleverage trajectory over the rating horizon. With the combination of fixed capacity payments derived from the company's PPAs and the amortizing structure of the loan, debt service coverage ratio should lead to a fairly stable levels averaging 1.5x during the life of the loan. In addition, Cochrane's interest coverage should average 4.7x between 2023-2026.
Ratings Equalized with Parent: Cochrane benefits from the ring-fenced shareholder agreement between
Derivation Summary
Cochrane's contracted position is unique among Chilean and regional peers with long-term contracts that offer cash flow stability. The company have PPAs concentrated with nonregulated clients, with mining sector off-takers accounting for 100% of capacity. Cochrane benefits from Daelin Energy's minority interest, which adds its experienced management team to Cochrane's decision-making processes, enhancing the strong shareholder agreement with
Cochrane has no exposure to hydrological risks as generation assets are concentrated in thermal units, while
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer:
Total energy sales between 1,700 and 2,000 gigawatt hours per year during 2023-2026;
Maintenance capex between
Fixed monthly charges in place;
Thermal coal (Australia Newcastle) at
Dividend distributions of
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A positive rating action is unlikely in the short to medium term, as the ratings are equalized with its parent
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A change in strategy regarding leverage, dividends, indebtedness and capex;
Acceleration of decarbonization legislation that would impact cash flow, liquidity and leverage;
A general deterioration in the credit quality of the off-takers or shareholders;
A material change in the company's commercial strategy, with new PPAs presenting dissimilar conditions compared with its current contracted structure.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Adequate Liquidity: Fitch expects Cochrane to maintain adequate liquidity levels to fund its financial needs supported by own cash flow generation, cash on hand and a comfortable debt amortization profile after liability management. Cash on hand reported as of
Issuer Profile
Cochrane is a coal-based power plant of 550MW of installed capacity located in the north of
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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