Moody's rates Nueva Transelec bond Baa3, cuts HQI debt to Baa3

Moody's Investors Service said it assigned a prospective Baa3 rating to Chile-based Nueva Transelec SA's upcoming issue of inflation-indexed senior unsecured bonds. The size of the issue will be 19.5 million Unidades de Fomento.

The agency also downgraded the senior unsecured debt of HQI Transelec Chile SA to Baa3 from Baa1. Nueva Transelec has assumed the debt of HQI Transelec in conjunction with the recent change of ownership.

The outlook is stable.

The agency said the senior unsecured rating reflects the significant increase in debt as a result of the change of ownership. However the rating is counterbalanced by Nueva Transelec's favorable fundamentals as the dominant transmission company in Chile with a service area encompassing 98% of the country's population. The rating also considers the degree of regulatory transparency and stability, the high levels of contractual and regulated revenues and the manageable levels of future capital expenditure needs given the good condition of company assets as reflected in the 99.9% reliability factor achieved in 2005.

Moody's said the company also benefits from high operating margins, moderate operating risk and the stability afforded by the resetting of tariffs once every four years. Financial metrics are at the lower end of the spectrum for the rating category: three-year average operating cash flow to debt is projected at 9% for 2006 to 2008 and debt to EBITDA is predicted to rise to 6.4x at the operating company and 7x on a consolidated basis from 4.5x in 2005.

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