Fitch Upgrades Transportadora de Gas Internacional's IDRs to 'BB+'; Outlook Stable

CHICAGO--(BUSINESS WIRE)--

Fitch Ratings has upgraded Transportadora de Gas Internacional S.A. E.S.P.'s (TGI) foreign and local currency Issuer Default Ratings (IDRs) to 'BB+' from 'BB'. Fitch has also upgraded TGI's USD750 million outstanding senior unsecured notes due 2017 to 'BB+' from 'BB'. The Rating Outlook is Stable.

The rating action reflects Fitch's recent upgrade of Empresa de Energia de Bogota's (EEB) to 'BB+' following EEB's equity issuance of approximately USD420 million, which strengthens EEB's capital structure and mitigates the company's need to increase debt levels to fund capital investments. TGI's upgrade also reflects the company's improved cash flow generation due to recent investments. TGI's ratings reflect the company's linkage with its primary shareholder, EEB, which supports the company through intercompany loans. TGI's ratings also reflect its low business risk, solid contracted position and improving credit metrics.

Low Business Risk:

TGI's ratings reflect the company's low business risk profile, which stems from its stable and predictable cash flow generation, as well as its strong competitive position. TGI has favorable long-term take-or-pay contracts with approximately 80 % of revenues coming from regulated fixed tariffs. This fixed capacity payments from a diversified portfolio of off-takers add to cash flow stability. The company has low exposure to volume risk as only 20% of revenue is linked to volume throughput. TGI's pipeline location and the importance of its service area, where 70% of the Colombian population resides, represent great growth potential and help support the company's credit profile and credit rating.

Moderate Leverage and Parent Support:

TGI's leverage level is moderate with debt to EBITDA of approximately 3.5 times (x) in dollar terms as of June 30, 2011. Including a USD370 million deeply subordinated intercompany loan from EEB, leverage would be approximately 5.1x in dollar terms. Going forward, TGI's leverage might decline as a result of the incremental cash flow coming from new assets, some of which recently entered commercial operations. As of the LTM ended June 30, 2011, the company reported an EBITDA of approximately USD242 million and total senior debt of approximately USD857 million.

TGI benefits from its parent company's explicit and implicit support. EEB owns 68.1% of TGI, and, in turn, the District Capital of Bogota (Bogota DC; foreign currency IDR 'BBB-') owns 81.5% of EEB. TGI's covenant package includes a maintenance covenant stipulating that net senior debt to EBITDA cannot exceed 4.8x after 2012. The company is well below this level given the method by which the ratio is calculated, which excludes deeply subordinated intercompany debt. TGI's ratings also incorporate its exposure to regulatory risk, as the bulk of its revenue comes from contract tariffs, which are set by the regulator. TGI's revenue is determined by the maximum allowable income set by the regulator every five years and adjusted by inflation every year.

Strong Liquidity and Low Refinancing Risk:

Liquidity is strong with no debt coming due before 2017. On June 30, 2011, TGI's cash and marketable securities were USD225 million, and consolidated cash at EEB was USD402 million. Capital expenditures are expected to be high over the next few years, limiting debt reductions over the medium term. TGI is not expected to pay dividends in the short term; yet, this policy may change in the future. TGI's regulated revenues are partially indexed to the U.S. dollar (approximately 60% of revenue are indexed to USD), which mitigates the risk from currency fluctuations as USD denominated revenues satisfactorily cover interest expenses. Furthermore, the company has swapped USD200 million of debt principle into peso debt.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 13, 2011).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

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