TEXT-Fitch release on Transener

(The following statement was released by the rating agency)

May 30 - Fitch ratings has affirmed today the long-term foreign and local
currency Issuer Default Ratings (IDRs) of Transener (TRA.BA: Quote, Profile, Research) at 'B'. Fitch has
also affirmed the senior unsecured issue rating at 'B' reflecting a recovery
expectation in the 'RR4' category. The Rating Outlook for all corporate ratings
is Stable.
T
ransener's ratings reflect solid credit quality, which stems from stable and
predictable operating cash flows and its sound financial profile. The ratings
are tempered by the company's exposure to the local weak regulatory
environment, to growing inflation and to currency mismatch between revenues and
debt.
The Stable Outlook is based on Fitch's expectations that Transener's credit
metrics will remain within the parameters for its current rating category.
Transener is expected to maintain adequate credit ratios despite the negative
effects of cost increases and frozen tariffs. For the latest 12 months (LTM)
ended March 2008, the company had funds from operations (FFO) coverage of 2.7
times (x) and net debt-to-EBITDA of 3.8x. Fitch expects the credit metrics to
remain within that range over the medium term.
Transener's regulated segment provides a stable cash flow but faces a
significant regulatory risk. The company's full tariff review has been
indefinitely suspended by the government and no tariff adjustments to recognize
increases in its cost structures have been approved. Conversely, growing
inflation has affected the operating margin of the regulated segment and will
continue to do so absent any tariff increases. Future non-regulated revenues
are expected to benefit from the Federal Plan to expand the high-voltage
transmission lines carried out mainly by the federal and provincial
governments. Overall, both business segments are highly dependent on the local
government.
Transener enjoys an adequate long-term debt structure with no material debt
maturities between 2008 and 2012. During that period Fitch expects an average
annual Free Cash Flow (FCF) of USD17 million (after interest expenses) that
compares to a similar amount of capital investments. From 2013 onwards, absent
any tariff increases FCF would decrease and Transener will require financing
for the USD220 million notes that begin amortizing.
Transener's financial profile is characterized by adequate interest coverage
and a moderate leverage. Through March 2008 (LTM) consolidated EBITDA of USD57
million was slightly weaker than in 2007, reflecting the hike in its cost
structure. Conversely, EBITDA margin decreased to 36% from 45% in 2006.
However, through 2008-2013 the company will benefit from supervision and
operating fees associated with the Federal Plan which are expected to initially
offset the impact of inflation on FFO, absent any tariff increases. Fitch
expects FFO-interest-coverage on the range of 2.5x-3x over that period,
consistent with the current ratings.
Transener S.A. has an exclusive concession to operate the main national
high-voltage transmission grid (currently 9.100 kilometers) until 2088. Also,
the company, through its 90% stake in Transba S.A., has the exclusive
concession until 2092 of the transmission grid in the Province of Buenos Aires
(approximately 6000 kilometers). Jointly, Transener and Transba account for
approximately 95% of the national high-voltage grid. In addition, the company
has non-regulated revenues associated with services provided to third parties
both locally and internationally. Transener's controlling shareholder is
Citelec S.A. with a 52.7% participation, while the remaining 47.3% is publicly
traded. Since December 2007 Citelec is 50% owned by Pampa Holding S.A. (through
Transelec Argentina S.A.), 25% by Energia Argentina S.A. (state owned company)
and 25% by Electroingenieria S.A. (local company). Fitch does not expect any
material impact in the operations of Transener as a result of the change in its
ownership structure.
(New York Ratings Team)