Fitch Upgrades Dominican Generation Companies

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has upgraded the ratings on the following Dominican Republic utilities following the upgrade of the country's Long-Term Issuer Default Ratings (IDRs) to 'BB-' from 'B+'.

Fitch has upgraded the following:

AES Andres, B.V.

--Long-Term Foreign-Currency IDR upgraded to 'BB-' from 'B+'; Rating Outlook revised to Stable from Positive;

--Senior unsecured notes due 2026 to 'BB-' from 'B+/RR4'.

Empresa Generadora de Electricidad Itabo, S.A.

--Long-Term Foreign-Currency IDR to 'BB-' from 'B+'; Rating Outlook Revised to Stable from Positive;

--Long-Term Local-Currency IDR to 'BB-' from 'B+'; Rating Outlook Revised to Stable from Positive;

--Senior unsecured notes due 2026 to 'BB-' from 'B+/RR4'.

The recovery ratings on the unsecured debt have been removed following the issuers' transition into the 'BB' category of ratings.

KEY RATING DRIVERS

The upgrades reflect the Dominican Republic's (DR) electricity sector's high dependence on transfers from the central government to service financial obligations; a condition that links the credit quality of the distribution companies and generation companies to that of the sovereign. Low collections from end-users, high electricity losses and subsidies have undermined the distribution companies' cash generation capacity, exacerbating the generation companies' dependence on public funds to cover the gap produced by insufficient payments received from distribution companies. The ratings also consider the companies' solid asset portfolio, strong balance sheet, and well-structured purchase power agreements.

The corporate rating actions are linked to the recent upgrade of the Dominican Republic's sovereign rating. This upgrade reflects continued strong growth momentum and rising per capita income, reduced external vulnerabilities and fiscal restraint through the 2016 election cycle.

RATING SENSITIVITIES

Sovereign risk remains the key rating driver for Dominican GenCos. The main factors that, individually or collectively, could lead to a positive rating action on the Dominican Republic's sovereign ratings are:

--Strengthened international reserves position;

--Strengthening of the government's revenue base, fiscal consolidation and reduction of public debt burden.

The main factors that could lead to a negative rating action on the sovereign are:

--Increased budget deficits and/or weaker growth leading to a marked increase in the government debt burden;

--Deterioration of the international reserves position and current account deficit;

--Emergence of fiscal financing constraints.

Additional negative triggers at the operational level of the Dominican GenCos would include:

--Sustained deterioration in government transfers;

--Gross leverage of 4.5x or greater through the rating cycle.

Date of Relevant Rating Committee: Nov. 21, 2016.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016)

https://www.fitchratings.com/site/re/885629

Additional Disclosures

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https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1015142

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015142

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https://www.fitchratings.com/regulatory

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Source: Fitch Ratings

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