S&P affirms some AES units in El Salvador

Standard & Poor's said it affirmed its BB+ issuer credit ratings on Compañia de Alumbrado Eléctrico de San Salvador SA de CV (Caess), Empresa Eléctrica de Oriente SA de CV (EEO) and Distribuidora Eléctrica de Usulután SA de CV (Deusem).

At the same time, S&P affirmed its AAA rating on Caess's $120 million wrapped fixed-rate notes, which are due in 2011. The outlook is stable.

All three entities are El Salvador-based electric distribution companies majority owned and controlled by AES Corp. (B+/positive/--).

S&P said the rating on the notes reflects the unconditional and irrevocable guarantee of full payment on principal and interest as scheduled, provided by MBIA Insurance Corp. (AAA/stable/--).

S&P said the rating recognizes that the tariff formula remains untested in a stress environment. And given the undeveloped capital markets in El Salvador, the companies have limited financial flexibility compared with distribution companies operating in countries with more developed financial markets.

These weaknesses are mitigated by the following strengths: the companies generate stable cash flow; there is a favorable tariff structure and customer base profile; AES has strong management experience; there is a quasi-monopoly environment in which the companies provide electric distribution; the financial profile is expected to remain stable; and operations have been stable and are superior to peers, as demonstrated by low distribution losses.

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