Fitch Ratings has affirmed AES Corporation's (NYSE:AES) Issuer Default Rating (IDR) at 'B+', and assigned a short-term IDR of 'B'.
Fitch has also taken the following rating actions:
AES
-Senior unsecured to 'BB/RR1' from 'BB/RR2'
AES Trust III
--Trust preferred securities to 'B+/RR4' from 'B/RR5'.
AES Trust VII
--Trust preferred securities to 'B+/RR4' from 'B/RR5'.
In addition, Fitch affirms the following:
AES
--Senior secured credit facility at 'BB+/RR1';
--Junior secured notes at 'BB+/RR1'.
The positive rating actions reflect improvement in asset values based on Fitch's updated recovery analysis. Fitch uses a stressed valuation for AES' assets, most of which are valued on a discounted cash flow basis using a discount rate and terminal multiple specific to each asset's operating and financial risks. The stressed valuation is not reflective of AES' current value as a going concern, and Fitch notes the estimated asset values may be below current market levels. The trust preferred securities also benefited from the company's redemption in 2006 of senior subordinated notes, which reduced the structural subordination of the trust preferred securities.
AES's ratings reflect the high level of parent-company recourse debt, the structural subordination of that debt to project level debt, the reliance on distributions from its subsidiaries for parent-company debt service, and the shift in management's focus to growth from improving credit quality. The ratings also reflect the company's large base of cash flows from utility operations and contracted generation as well as the diversification of cash flow sources. The Stable Rating Outlook reflects Fitch's expectation that credit metrics will stay within parameters for the current rating as the company focuses its cash on investing rather than debt reduction for the next several years.
One area of concern is the company's continued problems with its financial reporting. AES has restated its financials five times during the last three years, and delayed filing its 10-K twice. Resolving the remaining Sarbanes-Oxley issues may result in further restatements and delays. Although the restatements have been relatively minor and non-cash in nature, the delays caused technical defaults under the company's bank covenants. While AES received waivers from its lenders in the past, the current credit conditions may increase the difficulty of obtaining future waivers and cause lenders to demand terms less favorable to the company. The financial reporting problems also highlight the challenges of managing operations spread across the world.
The current rating action does not affect the ratings of other AES affiliates rated by Fitch. In general, these rated entities are bankruptcy remote from AES by virtue of their legal structure or by virtue of their country of location.
AES is a leading global power company, with 2006 sales of $12.3 billion. AES operates in 28 countries, with generating capacity of 42,000 megawatts of electricity.
Fitch's Recovery Ratings (RR) are a relative indicator of creditor recovery prospects on a given obligation within an issuers' capital structure in the event of a default.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts:
Justin Bowersock, CFA, +1-312-368-3151
Denise
Furey, +1-212-908-0672
Brian Bertsch, +1-212-908-0549 (Media
Relations)
