Fitch Ratings has affirmed
Fitch has also affirmed AAG's 'CCC'/'RR3' ratings for the company's
AAG's ratings reflect the company's exposure to the Argentine sovereign (CCC-) due to the electricity sector's reliance on government subsidies and AAG's dependence on payments from FONINVEMEM funds, which is a sovereign obligation. Fitch rates AAG on a standalone basis from its parent,
The 'CCC'/'RR3' ratings on the
Key Rating Drivers
Heightened Counterparty Exposure: AAG depends on payments from CAMMESA, which acts as an agent on behalf of an association representing agents of electricity generators, transmission, distribution and large consumers or the wholesale market participants. Argentine generation companies receive payments from CAMMESA within 42 days after the close of the period, but payments have been delayed to an average of 65 days in recent months. Roughly 45% of the system cost as of 4Q22 was funded with government subsidies, and AAG was owed
Uncertain Regulatory Environment: The electricity market remains a priority of the Argentine government. Further regulatory reform is highly probable to reduce costs and prevent the system from becoming insolvent. Fitch estimates the government transferred
Medium-Term Deleveraging Expected: AAG's leverage will decline to 1.5x, in dollar terms, by 2024 as the company uses its operating cash flow and FONINVEMEM collections to pay off the majority of its 2024 bond and other loans at maturity. Projected 2022 results point to slight weakening of the company's credit metrics, with gross leverage increasing to 3.0x in 2022 from 2.7x in 2021. The increase was largely due to a one-time increase in uncollected receivables for which AAG is expected to be compensated. By 2023, leverage is anticipated to decline to 1.9x following a roughly 40% yoy increased EBITDA margin.
Base Energy Inflation Adjustment: The indexation of Energia Base will be important for AAG and other producers, whose revenue is nearly 80% derived from Energia Base when FONINVEMEM collections are considered. With Resolution 31/2020, Base Energy was pesified, or denominated in Argentine pesos, at an effective rate of
Resolution 440/2021 took effect in
FONINVEMEM Receivables in Place: AAG's EBITDA generation was affected by the pesification of Base Energy but has been, and will be compensated by the company's receivables from its FONINVEMEM investments with
Hydro Concession Expirations: The expiration of concessions for key hydro assets will lower the company's future EBITDA to below
Low Commodity Price Impact: AAG's exposure to rising global commodity prices will be low. The company's revenue comes primarily from Base Energy, which is the country's spot market framework whose participants have their fuel sourced and paid for by CAMMESA. While the coal used in the San Nicolas plant is sourced internationally, namely from
Parent Linkage: AAG's ratings are based on its standalone credit profile, as overall legal, operational and strategic incentives to its parent company
Derivation Summary
AES Argentina's Long-Term FC and LC IDRs reflect the company's exposure to CAMMESA as an offtaker, which is reliant on subsidies from the Argentine government. This is the same situation for Argentine utility and energy peers
In terms of credit metrics, AAG's gross leverage as of year-end 2021 was 2.7x, compared with Pampa at 1.6x,
Key Assumptions
Base Energy assets are remunerated under Resolution 440/2021 with full inflation pass-through in each subsequent year;
Gross generation of approximately 9,500GWh during 2022, falling to roughly 7,800GWh in 2024 after the expiration of the Alicura hydro concession in 2023;
AAG achieves generation capacity factors of 45% for thermal assets, 20% for hydro and 45% for wind during the rating horizon;
20% rise in coal unit costs in 2022 versus 2021, to be reimbursed by CAMMESA. Costs will fall to historical average thereafter;
Average annual maintenance capex of
No dividend payments until 2024 when annual payments of
Majority of outstanding
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade to the ratings of
Given the issuer's high dependence on the subsidies from CAMMESA, any further regulatory developments leading to a more independent market less reliant on support from the Argentine government could positively affect the company's collections/cash flow.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of AES Argentina below 'CCC-' would be due to Fitch's belief that a default of some kind appears probable or a default or default-like process has begun, which will be represented by a 'CC' or 'C' given that the ratings of AES Argentina are linked to those of the Argentine sovereign at 'CCC-' due to the high reliance on government subsidies to the electricity sector.
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: As of
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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