Fitch Ratings has affirmed
The Rating Outlook on all ratings is Stable. Fitch has also affirmed the company's
Fitch expects AES Panama Generation to deleverage to 3.5x gross leverage 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: AES Panama is the largest private electricity generator in
Improving Leverage Profile: The company's gross leverage profile, defined as total debt to EBITDA, is estimated to improve to 4.5x in 2022, down from 5.5x in 2021 and 6.4x in 2020. Leverage is anticipated to further decline over the next three years, mostly attributable to debt repayment of
Asset Base: AES Panama Generation's asset base is highly dependent on hydrology, which represents two-thirds of its installed capacity. The company mitigates the risk of the country's periodic drought by dispatching its efficient thermal Colon plant, as well as by expanding into solar and wind assets. The company is highly contracted, representing an average of 70% of its total installed capacity, thus is well positioned to sell excess electricity in the spot market under strong hydrological conditions. During times of low hydrology, the company can dispatch its conventional capacity, currently Colon, and eventually Generadora Gatun (Gatun), to honor its contracted volumes.
Strong Cash Flow Generation: The company's strong contractual position reflects an average contract life of its contracts of seven years with investment grade off-takers, translating into predictable and stable cash flows over the rated horizon. FFO 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 most of the companies operated by AES Panama Generation. Historically, generation companies in
Derivation Summary
Fitch expects AES Panama Generation's leverage to be between 4.5x and 3.5x between 2022 and 2024 before falling to below 3.4x in 2025 and thereafter. This capital structure is in line with that of
AES Panama Generation's capital structure is more aggressive than those of higher rated Colombian peers, such as
The company's national scale rating of 'AA+(pan)'/Stable is comparable with that of
Key Assumptions
Hydrology conditions and plant load factors will follow long-term historical averages (including yoy variability) in 2022 and beyond;
Average monomic prices for 2022 through 2025 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 will spike to approximately
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 cash flow from operations (CFO) of an average of
The companies' strong operating cash flow and favorable debt maturity profile are partially offset by expected future dividends. Fitch assumes a combined minimum cash balance of
Issuer Profile
AES Panama Generation 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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