Corporates Electric-Corporate / Dominican Republic
Empresa Generadora de Electricidad Haina, S.A. (Haina) Full Rating Report Key Rating Drivers
Ratings
High Risk Sector: The Dominican Republic power sector is characterized by low collections
Foreign Currency Long-Term FC IDR Long-Term LC IDR Senior Unsecured
B B B
from end users and high electricity losses. Such conditions have undermined distribution companies’ (DISCOs) cash flow generation, leaving them dependent on government subsidies to honor their accounts payable to the Dominican generation companies. This links the credit quality of the distribution and generation companies in the country to that of the sovereign.
FC – Foreign currency. LC – Local currency. IDR – Issuer default rating.
Rating Outlook Long-Term LC/FC IDR
Positive
Financial Data Haina S.A. (USD Mil.) Revenue
LTM 3/31/12 12/31/11 648 618
EBITDA EBITDA Margin (%)
119 18.4
112 18.2
FFO CFFO FCF FFO Interest Coverage (x) Total Debt Total Debt/ EBITDA (x) EBITDA/Debt Service Coverage (x)
99 82 (24)
83 41 (10)
5.5 301
5.4 281
2.5
2.5
1.7
1.7
Transition Risk Diminishes: The incumbent party’s electoral victory in the presidential elections held during May 2012 partially diminishes the political uncertainty that had prevailed during the first half of the year. For Empresa Generadora de Electricidad Haina, S.A. (Haina), the results lowered the risk of noncontinuous policies aimed at strengthening the financial viability of the Dominican electricity sector, as agreed to under the last IMF Standby agreement, which expired in February 2012. Key political measures needed to achieve a financially viable sector in the medium term include a gradual adjustment to tariffs, increases in the DISCOs’ cash recovery index (CRI) to 70% from the historical lows of 50%, and the reduction of days receivables from generating companies to a 60-day average.
Competitive Generation Assets: Haina’s ratings are supported by its diversified portfolio of generation assets, including wind generation, the use of various sources of fuel in its plants, and its strong market position and operational efficiency. These plants use fuel oil, diesel, and coal. This diversification provides the company with different positions on the dispatch merit list. Haina’s operational efficiency compares favorably with other generating companies in the country, registering an average heat rate of 9.526 British thermal units (Btu) per kilowatt-hour (kWh). Its most efficient unit registers a 7.800 Btu/kWh heat rate burning heavy fuel oil, also known as fuel oil No. 6. Strong Credit Metrics: Haina’s credit metrics are strong relative to other ‘B’ rated companies. For the LTM ended March 31, 2012, the company reported an EBITDA of USD119 million (USD112 million in fiscal 2011) and had an 18.4% EBITDA margin. Respectively, leverage and debt service coverage stood at 2.5x and 1.7x in relation to EBITDA as of March 31, 2012. Volatile Cash Flow Generation and Collection: For the LTM ended March 31, 2012, the company generated USD82 million of CFFO, an increase from USD41 million in 2011. Like other generators, the company struggles to collect receivables from distribution companies. At the end of first-quarter 2012, days receivable outstanding totaled 120 days, which is equivalent to four invoice periods. The collection rate was 54% during this period. With USD149 million of cash on hand, liquidity is high at 3x short-term debt.
Analysts Julio Ugueto +58 212 286-3356 julio.ugueto@fitchratings.com Lucas Aristizabal +1 312 368-3260 lucas.aristizabal@fitchratings.com
www.fitchratings.com
What Could Trigger a Rating Action Key Rating Drivers: Lower dependence of the sector on government subsidies could lead to a rating upgrade. The ratings would also be positively affected by a positive rating action on the sovereign.
September 11, 2012
Corporates Liquidity and Debt Structure Haina’s liquidity is supported by USD149 million of cash on hand and a staggered debt maturity profile. Total debt of USD301 million is composed of USD165 million of senior unsecured notes due 2017, local bonds for an aggregate amount of approximately USD62 million due through June 2016, and USD74 million of bank debt. Haina’s leverage ratio and net leverage ratio, both with respect to EBITDA, stood at 2.5x and 1.3x, respectively, as of March 31, 2012, which is lower than the average for the rating category.
Company Profile Haina is the largest generator of electricity in the Dominican Republic, operating 16 generating units and seven plants throughout the country. The company has a firm capacity of 247 MW and total combined installed capacity of approximately 600 MW, representing 20% of the country’s total installed capacity. The company is in the process of constructing a dual fuel (HFO #6 and natural gas) combined cycle power plant that will add 216 MW of net installed capacity during 2013. In addition, Haina is expanding its wind generation capacity from 25 MW to 77 MW. As a result, it is expected that Haina will boast a total installed capacity of approximately 870 MW by the end of 2013, reinforcing its position as the largest generator in the country. Haina was privatized in 1999 as part of the government’s strategy to capitalize the electricity companies. Since then, the company has increased its installed capacity to approximately 600 MW from 285 MW and has reduced its average heat rate to its current competitive levels of 9,526 Btu/KWh from 14,449 Btu/KWh. Haina also increased its efficiency by reducing the number of employees to 377 from 1,000 during this same timeframe. The company’s strategy is to improve its efficiency by investing in new, lower marginal cost generation capacity, as well as to diversify its revenue stream from the three main distribution companies by increasing its supply to unregulated customers. In line with its strategy, the company has entered into an agreement to provide electricity to Consorcio Energetico Punta Cana-Maco (CEPM), a small distribution company on the eastern part of the island that is popular with tourists. This is viewed as positive for Haina’s credit quality as CEPM does not have the systemic problems of the country’s main distribution companies. In addition to the contract with CEPM, HAINA sells electricity under well-structured, dollardenominated long-term purchase power agreements (PPAs) with the three main distribution companies in the country. The company’s PPAs total 350 MW and are with the following distribution companies: 138 MW with Empresa Distribuidora de Electricidad del Sur (EDE-Sur), 112 MW with Empresa Distribuidora de Electricidad del Norte (EDE-Norte), and 100 MW with Empresa Distribuidora de Electricidad del Este (EDE-Este). This last contract had been temporarily suspended by the company but has recently been reinstated to 50% of the nominal contracted capacity. The remaining 50 MW are expected to be reinstated by September 2012.
Related Criteria Corporate Rating (August 2012) National Ratings (January 2011)
Methodology Criteria
Empresa Generadora de Electricidad Haina, S.A. September 11, 2012
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Corporates Recovery Analysis Haina’s issuance has been assigned a recovery rating of ‘RR4’. The recovery was based upon the treatment of Haina as a going concern since a liquidation scenario is considered highly unlikely. The ratings have been capped at ‘RR4’ due to concerns about the low probability of high recoveries for bondholders of corporates domiciled in the Dominican Republic. Haina’s debt issuance is not guaranteed by any specific asset but rather by all of the company’s assets with no subordination with respect to any instrument. Fitch currently maintains a positive outlook for the sovereign, and as such we do not foresee a bankruptcy scenario for Haina in the near future, unless a low probability event such as a severe fiscal crisis materializes that would severely impact the company’s cash flow. The distressed EBITDA of Haina was calculated to cover the company’s fixed charges and critical maintenance capex. This EBITDA was multiplied by a conservative 5x multiple to arrive at a distressed company valuation. This distressed valuation would be associated with a severe fiscal crisis that would lead to a sustained cash flow drain for all generating companies in the country and contemplates the low probability event of a nonfriendly renegotiation scenario of the company’s PPA’s with distribution companies to the detriment of Haina. In this hypothetical scenario, it would be reasonable to expect a low demand for the company’s assets under a competitive bidding process, further supporting the distressed valuation commented above.
Recovery Analysis Empresa Generadora de Electricidad Haina, S.A. (USD Mil.)
IDR:
B
Going Concern Enterprise Value LTM EBITDA as of March 31, 2012 Discount (%) Distressed EBITDA Market Multiple (x) Enterprise Value
119.0 63.0 44.0 5.0 220.0
Post-Restructuring EBITDA Estimation Guidelines Interest Expense Rent Expense Est. Maintenance Capital Expenditures Principal Amortization (Next 12 Months)
Unsecured Priority Issuer Default Rating Senior Unsecured Subordinated Junior Subordinated
Amount Outstanding and Available R/C — 227.0 — —
22 — 10 12
Enterprise Value for Claims Distribution Greater of Going Concern Enterprise or Liquidation Value Less Administrative Claims (10%) Adjusted Enterprise Value for Claims Value Recovered — 198.0 — —
Recovery Rate (%) — 87 — —
Recovery Rating — RR2 — —
Notching — +2 — —
220.0 22.0 198.0
Rating B BB– — —
Source: Fitch.
Empresa Generadora de Electricidad Haina, S.A. September 11, 2012
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Corporates Organizational Structure – Empresa Generadora de Electricidad Haina S.A.
Basic Energy
Caribe Energy Ltd.
31.08%
Other 24.41%
44.51%
Dominican Republic (IDR — B)
Haina Investment Company Ltd.
Through FONPER 50.00%
50.00%
Empresa Generadora de electricidad Haina S.A. Operating Company (Guarantor) IDR — B
EGE Haina Finance Company (Issuer) USD175 Senior Unsecured Notes Rating — B
Source: Empresa Generadora de Electricidad Haina S.A.
Empresa Generadora de Electricidad Haina, S.A. September 11, 2012
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Corporates Debt and Covenant Synopsis — Empresa Generadora de Electricidad Haina, S.A. (Foreign Currency Notes) Overview Issuer Guarantors Document Date Maturity Date Description of Debt
EGE Haina Finance Company Empresa Generadora de Electricidad Haina, S.A. May 11, 2007 April 26, 2017 Senior Unsecured Notes
Financial Covenants Consolidated Net Debt/ EBITDA (Maximum) Interest Coverage (Minimum)
3.5x 2.5x
Acquisitions/Divestitures Change of Control Provision Sale of Assets Restriction Debt Restriction Additional Debt Restriction
Limitation on Secured Debt Restricted Payments
Other Cross Default Acceleration
Restriction on Purchase of Notes
Change-of-control clause at 101% of principal. Generally permits asset sales as long as it is divested at least equal to fair market value, Haina receives at least a 75% cash payment, and the proceeds are used to reduce debt or are reinvested. The issuer is not allowed to incur additional debt. The guarantor is not allowed to incur additional debt except permitted debt. Permitted debt includes debt used to refinance existing or permitted indebtedness, subject to standard limitations. The guarantor can incur additional indebtedness in an aggregate principal amount not to exceed $25 million. Haina is not permitted to issue senior secured debt or to create any lien on any asset, property, or income without providing the same security to the existing notes. The issuer is not permitted to pay any dividends or make any other distribution to its shareholders. The guarantor is not permitted to make any restricted payments if, among other clauses, it cannot incur additional debt according to its limitation on indebtedness, an event of default has occurred, or if such payment exceed 100% of combined net income. If the issuer, guarantor, or any restricted subsidiary defaults on any indebtedness of at least USD20 million. If any event of default occurs and is continuing, the trustee or the holders of at least 25% of the outstanding notes may declare the notes to be due and payable. Events of default include, but are not limited to, the interest reserve not being fully funded for more than five days and if the issuer, guarantor or any restricted subsidiary defaults in any indebtedness of at least USD20 million. The issuer is allowed to redeem the notes in whole or in part at a preset redemption price.
Source: Company and Fitch Ratings.
Empresa Generadora de Electricidad Haina, S.A. September 11, 2012
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Corporates Financial Summary Empresa Generadora de Electricidad Haina, S.A. (USD Mil., As of Dec. 31) Profitability Operating EBITDA Operating EBITDAR Operating EBITDA Margin (%) Operating EBITDAR Margin (%) FFO Return on Adjusted Capital (%) Free Cash Flow Margin (%) Return on Average Equity (%) Coverage (x) FFO Interest Coverage Operating EBITDA/Gross Interest Expense Operating EBITDAR/Interest Expense + Rents Operating EBITDA/Debt Service Coverage Operating EBITDAR/Debt Service Coverage FFO Fixed-Charge Coverage FCF Debt Service Coverage (FCF + Cash and Marketable Securities)/Debt Service Coverage Cash Flow from Operations/Capital Expenditures Leverage (x) FFO Adjusted Leverage Total Debt with Equity Credit/Operating EBITDA Total Net Debt with Equity Credit/Operating EBITDA Total Adjusted Debt/Operating EBITDAR Total Adjusted Net Debt/Operating EBITDAR Implied Cost of Funds (%) Secured Debt/Total Debt Short-Term Debt/Total Debt Balance Sheet Total Assets Cash and Marketable Securities Short-Term Debt Long-Term Debt Total Debt Equity Credit Total Debt with Equity Credit Off-Balance Sheet Debt Total Adjusted Debt with Equity Credit Total Equity Total Adjusted Capital Cash Flow Funds from Operations Change in Working Capital Cash Flow from Operations Total Non-Operating/Nonrecurring Cash Flow Capital Expenditures Common Dividends Free Cash Flow Net Acquisitions and Divestitures Other Investments, Net Net Debt Proceeds Net Equity Proceeds Other (Investments and Financing) Total Change in Cash Income Statement Revenue Revenue Growth (%) Operating EBIT Gross Interest Expense Rental Expense Net Income
LTM 3/31/12
2011
2010
2009
2008
118,846 118,846 18.4 18.4 17.4 (3.7) 18.3
112,243 112,243 18.2 18.2 15.6 (1.7) 18.7
78,649 78,649 18.6 18.6 16.0 12.5 13.6
44,555 44,555 14.5 14.5 9.1 (14.1) 4.7
74,174 74,174 16.1 16.1 18.0 (6.7) 12.6
5.5 5.4 5.4 1.7 1.7 5.5 0.0 2.1 0.9
5.4 5.9 5.9 1.7 1.7 5.4 0.1 2.9 1.1
4.2 3.9 3.9 2.0 2.0 4.2 1.8 4.6 2.7
1.7 1.7 1.7 1.4 1.4 1.7 (0.5) 0.7 (2.9)
3.7 3.1 3.1 2.9 2.9 3.7 (0.3) 0.6 0.4
2.5 2.5 1.3 2.5 1.3 8.6 — 0.2
2.8 2.5 0.9 2.5 0.9 7.8 — 0.2
2.4 2.6 1.2 2.6 1.2 9.9 — 0.09
4.5 4.5 3.7 4.5 3.7 13.6 — 0.03
2.0 2.4 2.1 2.4 2.1 13.1 — 0.01
824,452 149,333 47,700 253,311 301,011 — 301,011 0 301,011 394,305 695,316
741,466 183,879 47,656 233,750 281,406 — 281,406 0 281,406 375,160 656,566
583,385 110,924 19,600 186,967 206,567 — 206,567 0 206,567 324,181 530,748
554,309 39,548 6,000 196,367 202,367 — 202,367 0 202,367 291,804 494,171
584,234 22,340 1,703 175,000 176,703 — 176,703 0 176,703 316,687 493,390
99,035 (16,588) 82,447 0 (92,450) (13,999) (24,002) 14 15,649 90,243 0 (5,579) 76,325
83,227 (42,154) 41,073 0 (37,539) (13,999) (10,465) 60 9,035 74,840 0 (514) 72,956
64,707 35,110 99,817 0 (37,099) (9,997) 52,721 0 14,488 4,200 0 (30) 71,379
19,021 (36,323) (17,302) 0 (5,881) (20,003) (43,186) 0 32,978 27,737 0 (322) 17,207
65,116 (58,979) 6,137 0 (17,098) (20,000) (30,961) 0 16,986 (10,738) 0 0 (24,713)
647,558 4.9 101,435 22,026 0 67,458
617,540 46.2 95,895 18,922 0 65,470
422,509 37.5 62,567 20,304 0 41,975
307,198 (33.3) 29,015 25,837 0 14,403
460,567 0.3 58,870 23,792 0 38,934
Source: Fitch.
Empresa Generadora de Electricidad Haina, S.A. September 11, 2012
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Corporates
The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
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