Termocandelaria Power Ltd Assigned 'BB+' Issuer Credit And Issue-Level Ratings; Outlook Stable

  • Termocandelaria Power Limited (TPL) is a Colombia-based power generation company with a combined 1,283 megawatt (MW) installed capacity, which supplies around 8% of Colombia's annual electricity demand and close to 35% of the demand from the country's Atlantic coast where TPL's assets are located.
  • TPL plans to issue senior unsecured notes, the proceeds from which the company will downstream to its operating subsidiaries in order to pay existing debt and to distribute dividends. The issuance should result in additional financial and operating flexibility.
  • On Jan. 10, 2019, S&P Global Ratings assigned its 'BB+' long-term issuer credit rating to TPL. At the same time, we assigned a 'BB+' rating to the proposed senior unsecured notes.
  • The stable outlook on TPL reflects our expectations of conservative leverage, resulting in a net-debt-to-EBITDA ratio of 1.5x-2.0x and free operating cash flow (FOCF) to debt of 25%-30% in the next 18 months. We expect cash flows to be enough to cover TPL's limited maintenance capital expenditures (capex) and debt service needs, while dividend distribution is discretionary.
MEXICO CITY (S&P Global Ratings) Jan. 10, 2019—S&P Global Ratings took rating 
actions listed above. The 'BB+' ratings on TPL reflect that we view it as a 
strategic in-situ power generation company. It has dispatch priority on the 
dispatch curve because it's positioned immediately after the hydropower and 
coal-fired plants. In addition, our ratings incorporate our view of the 
favorable and transparent regulatory, legal, and contractual framework in 
Colombia. Finally, we view as positive the company's long-term contracts with 
the unique liquefied natural gas (LNG) regasification plant in Colombia that 
improves the company's ability to withstand operating disruptions, 
particularly given the likely scenario of gas scarcity in Colombia in the next 
few years.

On the other hand, our ratings reflect our view of TPL as a smaller company 
with exposure to uncontracted generation revenues (in-merit and out-of-merit) 
due to the nature of the business model and concentration in one asset 
(TEBSA), compared with other strong players in Colombia that have short- to 
medium-term power purchase agreements (PPAs) that mitigate price volatility. 
Nevertheless, we acknowledge that the assets' strategic location in a region 
with grid constraints gives some stability to TPL's profitability.

From a financial standpoint, we expect TPL to maintain conservative debt 
levels compared with its expected EBITDA generation because of the stability 
stemming from its annual cash inflow from an availability charge and from 
using LNG as fuel. In addition, stable EBITDA generation is likely due to 
TPL's strategic location in the Atlantic coast region where other more 
efficient generation companies are unable to gain market share due to grid 
constraints, which require in-situ generation from regional companies such as 
TPL. 

In the next two years, EBITDA generation will be in the range of $200 million 
to $230 million assuming normal hydrological conditions (we don't expect the 
La Niña abundant rain phenomenon to occur) and, including the expected 
issuance, net financial debt will average around $300 million. In addition, 
we're including in our forecast only maintenance capex, around $20 million per 
year, over existing assets with no expansion investments.

Termocandelaria Power Ltd (TPL) has 1,283 megawatts (MW) of installed capacity 
in Colombia's Atlantic Coast region and operates through its owned and 
consolidated subsidiaries, Termobarranquilla S.A. (TEBSA; not rated, installed 
capacity of 959 MW) and Termocandelaria S.A. (TECAN; not rated, 324 MW).