Fitch Ratings has affirmed
The Rating Outlook on all ratings is Stable. Fitch has also affirmed the company's
Fitch expects AESPGH to deleverage to around 3.7x gross leverage, measured as total debt/EBITDA, by 2024 from 6.4x in 2020 due to scheduled debt amortizations, increased LNG storage fees, and contracted price step-ups on its hydro power purchase agreements (PPAs). A parent and subsidiary relationship exists between
Key Rating Drivers
Strong Market Position: AESPGH is the largest private electricity generator in
Improving Leverage Profile: The company's gross leverage profile, defined as total debt to EBITDA, improved materially in 2022 to 3.0x, down from 5.5x in 2021 and 6.4x in 2020, due to extraordinary revenues from third party LNG sales, increased generation volumes, and ongoing debt amortization. Leverage is anticipated to steadily decline (below the pre-2022 level) over the next three years, mostly attributable to debt repayment of
EBITDA is estimated to approach
Diversified Asset Base: AESPGH's asset base is highly dependent on hydrology, which represents two-thirds of its installed capacity totalling 1.2GW. The company mitigates the risk of the country's periodic drought with a diversified portfolio that includes an efficient thermal AES Colon plant and solar and wind assets. Fitch's base case assumes that the company will be in a net buying position of power over the next five years, which exposes the company to over-contracting risk for hydroelectric revenues during dry years.
The base case also assumes that AES Colon will reduce generation in the near-term, as Generadora Gatun (Gatun, a 670MW thermal gas-fired plant), comes online in late-2024 and is expected to operate at a lower and more economical heat rate than AES Colon. AES Colon will fulfill its contracted volumes from spot market purchases. Gatun's added capacity to the market is expected to lower spot prices.
Strong Cash Flow Generation: The company's predictable and stable cash flows are supported by an average contract life of seven years with investment grade off-takers. Cash flow from operations (CFO) is estimated to average
Regulatory Risk: The company's ratings also reflect its exposure to regulatory risk, as the government remains a majority shareholder in AES Panama. Historically, generation companies in
Derivation Summary
AESPGH's credit profile is commensurate with investment-grade, diversified electric generation companies (Gencos) in the region, such as
Fitch expects AESPGH's leverage to be between 4.4x and 3.7x between 2023 and 2024 before falling to 3.4x and below in 2025 and thereafter. This capital structure is in line with that of Kallpa, which is expected to have leverage of around 4.0x over the medium term. Kallpa also features a diversified asset base of both natural gas and hydroelectric production. AESPGH's capital structure is also comparable with that of
AESPGH's capital structure is slightly more aggressive than Colombian peer
(BBB-/Stable), which is expected to have medium-term leverage of 3.3x. Isagen's IDR is constrained by
Isagen's IDR reflects its leading business position in the Colombian electricity generation market and portfolio of diversified generation assets, and stability of EBITDA driven by a well-contracted position. Both AESPGH and Isagen have significant hydroelectric capacity and have the ability to mitigate El Nino risk with back-up thermal capacity.
The company's national scale rating of 'AA+(pan)'/Stable is comparable to
Key Assumptions
Hydrology conditions and plant load factors will follow long-term historical averages (including yoy variability and the dryer effects of El Nino) in 2023 and beyond;
Monomic contract prices for 2023 through 2026 for each company are:
Long-term hydro and renewable PPA prices have fixed prices where some of them adjust with inflation, and prices for capacity are fixed with no change over the life of the contract;
Expiring large user hydro PPAs will be renewed with similar terms;
Thermal PPA prices adjust based on the cost of fuel and capacity prices are fixed;
Spot prices to approximate
Generadora Gatun, a 670MW LNG-fired plant, enters operation in 2H24 and contracts LNG storage with
No significant asset sales occur during the rating horizon without corresponding debt rebalancing;
Dividends average
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Sustained gross leverage below 3.0x over the medium term;
A conservative contracting strategy that promotes cash flow stability and the ability to withstand hydrological shocks to the system;
Continued evidence of sustainable spot price stabilization as a result of asset diversification in Panamanian electricity matrix.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Sustained gross leverage above 4.0x and net leverage above 3.5x over the medium term;
Increased government intervention in the sector, coupled with a weakening regulatory framework;
Deterioration in the company's ability to mitigate spot-market risk;
Payment of dividends coupled with high leverage levels;
Significant asset sales causing an adverse change in financial 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 the combined company to generate strong free cash flow (FCF) of an average annual
The combined companies held a robust
Issuer Profile
AESPGH is indirectly owned by AES to finance operations in
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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