By Zinnia B. Dela Peña (The Philippine Star) Updated December 16, 2011 12:00 AM
MANILA, Philippines - Energy Development Corp. (EDC), the world’s largest integrated geothermal company, retained its issuer credit rating of PRS Aaa from the Philippine Rating Services Corp. for its P12-billion bonds.
PRS Aaa is the highest credit rating on PhilRatings’ long-term credit rating scale. These obligations are of the highest quality with minimal credit risk as the issuer’s capacity to meet its financial commitment on the obligation is extremely strong.
The bonds were issued in two tranches, with P8.5 billion due in June 2015 and P3.5 billion due in December 2016.
In issuing the rating, PhilRatings took into account EDC’s reinforced sustainable revenue stream and strong cash flow generation; enhanced standing as the leading vertically integrated geothermal power producer in the country; and its financial flexibility, as well as improved debt profile, thereby mitigating various operational and financial risks.
PhilRatings also considered EDC’s weakened profitability during the interim period due to the non-cash non-recurring impairment provision in relation to the Northern Negros Geothermal Power Plant (NNGPP).
EDC’s acquisition and rehabilitation of key government geothermal privatization projects (i.e. Palinpinon-Tongonan and the Bacon-Manito plants) marked the full integration of EDC’s geothermal value chain: from steam production to electricity generation. This allows harmonization in the decision making process and savings in total operational costs.
Aside from operational efficiency, this strategy is also expected to contribute to the stability of revenues going forward as these plants undergo rehabilitation to restore them to maximum capacity.
Bulk of the company’s energy production is contracted and tied to long-term take-or-pay contracts. Although this may hinder EDC from profiting from any sudden price advantage or opportunity in the Wholesale Electricity Spot Market (WESM), such arrangement provides sustainable and predictable cash flows for the company.
“Apart from the robust cash generated by operations, incremental borrowings further enhance cash levels of the company. EDC has several layers of financial flexibility given the long-term arrangements it maintains with various financial institutions, its improving debt profile and lighter covenants and terms it has negotiated for some of its loans in 2011, “ PhilRatings said.
The average tenor of EDC’s loans has been effectively lengthened while financing costs have also been substantially reduced as new loans have replaced some of the outstanding expensive debt.
EDC also continues to prepay its third currency loans to shift to peso denominated and US dollar-denominated debt, considering the natural hedge provided by its offtake contracts, thereby minimizing exposure to foreign exchange risk.
All these are expected to provide EDC with heightened opportunity to support the company’s growth priorities and operational efficiency going forward.
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