Fitch Ratings has affirmed
The Rating Outlook is Stable.
Orazul's ratings reflect the company's predictable cash flows supported by its contractual position, historically efficient and reliable hydroelectric generation assets, and cost structure flexibility. Fitch estimates gross leverage will decline to an average of 4.6x over the rated horizon compared to the elevated 6.5x level seen in 2020.
Key Rating Drivers
Contracted Cash Flows: Orazul's ratings primarily reflect its stable and predictable cash flows, supported by revenues generated through capacity (availability) payments and generation requirements mostly contracted through
As of 2023, PPAs have 6.5 years of remaining life with strong credit quality off-takers, with around 58% of contracts lasting six years or more. The total contracted level should decline in 2024 to 1.5GWh, a decline to 75% of total power generation, as certain contracts expire. Fitch expects the company is likely to recontract its capacity, given limited competition and capacity in the country, but does not consider recontracts in its rating case until PPAs have been signed and completed.
Increased Exposure to Spot Market Sales: Fitch estimates that Orazul will sell 25% of its total generation in the spot market in 2024, or a 130% increase compared to 2022 spot sales. The rating case assumes that a 17% decline in 2024 contracted revenue (
Leverage Profile; Coverage Ratio: Fitch expects gross leverage, measured as total debt/EBITDA, to increase in 2024 to 5.2x (from 4.7x the prior year) for one year as certain PPAs and associated capacity payments terminate, resulting in one year of reduced EBITDA. Thereafter, increased PPA prices and spot sales from higher demand will cause EBITDA to rebound and drive leverage to 4.6x and below (or 5.5x and below for contracted EBITDA alone) on a sustained basis, consistent with the 'BB' rating category.
Projections assume total debt of
Market Position, Reliable Generation: Orazul, the fourth largest hydroelectric provider in
Derivation Summary
Orazul's closest peers are generation companies in the region, such as
Orazul is rated two notches below Kallpa, as Kallpa benefits from a diversified generation mix and has a stronger market position as the largest private generator in
Key Assumptions
Spot injection prices average
Around 75% contracted level in 2024 as existing contracts expire, then around 77% of capacity contracted going forward, with spot sales accounting for the balance of capacity sold;
An increase in average regulated PPA prices to
Average annual dividends of
Capex of
Ongoing capacity factor averaging 68% between the two plants, and future hydrological conditions consistent with low historical volatility.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Gross leverage, measured by total debt/EBITDA, falling below 4.0x on a sustained basis;
Maintenance of an adequate contracted position with similar terms contributing to cash flow predictability.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Total debt/EBITDA substantially exceeding 5.0x on a sustained basis;
Excessive cash distribution to shareholders;
A material rebalancing of the contractual base, resulting in significant cash flow volatility.
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
Solid Liquidity: At
The company's only outstanding debt is a
Issuer Profile
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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