EDC bond secures top grade from ratings firm

PhilRatings says EDC can maintain strong cash flow
By: Amy R. Remo
Philippine Daily Inquirer
12:18 am | Friday, December 16th, 2011


Philippine Rating Services Corp. (PhilRatings) has maintained a PRS Aaa rating for Energy Development Corp.’s bonds amounting to P12 billion and its overall capacity to service maturing debts.
Obligations rated PRS Aaa are of the highest quality with minimal credit risk. This means that the borrower’s capacity to meet its financial commitment on the obligation is extremely strong, Philratings said in a statement.
The P12 billion worth of bonds were issued by the country’s largest geothermal producer in two tranches—with P8.5 billion due in June 2015 and P3.5 billion due in December 2016.
According to the credit watchdog, its rating was based on 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.
Also considered was 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).
Philratings noted that EDC’s acquisition and rehabilitation of key government geothermal privatization projects, specifically the Palinpinon-Tongonan and the Bacon-Manito geothermal facilities, marked the full integration of the company’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,” Philratings said.
It also pointed out that the 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,” it further said.
Apart from the robust cash generated by operations, incremental borrowings further enhance cash levels of the company.
Philratings also noted that EDC has several layers of financial flexibility given the long-term arrangements it maintains with various financial institutions.