Philratings cuts First Gen's rating

MANILA, Philippines - Domestic credit rating services company Philratings Inc. has revised downward its rating on First Gen Corp.’s outstanding P5-billion bond issue to PRS A plus.

PRS A plus is defined as having favorable investment attributes and considered as upper-medium grade obligations.

Philratings pointed out that while “obligations rated PRS A are somewhat more susceptible to the adverse effects of changes in economic conditions, the obligor’s capacity to meet its financial commitments on the obligation is still strong.”

The bond issue was earlier issued a rating of PRS A.

In issuing the new rating, Philratings took into account First Gen’s strong competitive position given its diversified portfolio of power assets, its sound contractual framework that provides steady and predictable cash flows, as well as management’s track record in energy-related business.

“The liquidity position and financial flexibility of the company, however, have been negatively affected by a significant increase in short-term debt in relation to the substantial amount paid for the acquisition of a controlling stake in Energy Development Corp. (EDC) and this, together with the continuing uncertainty and effects of the global credit crisis, are the main reasons for the change in rating,” Philratings said.

In the nine months ending September 2008, First Gen reported a 32 percent drop in its net earnings to $103 million as a result of higher interest and financing charges which jumped 150 percent to $141 million.

This has offset the 64.3 percent growth in revenues which stood at $1.3 billion due to higher electricity sales of $400.6 million and sale of steam of $75.9 million.

Philratings also expressed concern over the company’s planned refinancing of outstanding debt and the delay in the divestment of First Gen’s stake in Red Vulcan.

“Such impacts the company’s ability to improve immediately on the liquidity and financial flexibility aspects,” Philratings said.

First Gen, the power generation arm of the Lopez Group, primarily operates the 1,000-megawatt Sta. Rita and 500-MW San Lorenzo plants, both of which are located in Batangas province and supplying power to the Luzon grid.

The company is the largest vertically-integrated power generation company in the country with an installed capacity of 2,582 MW, accounting for approximately 16 percent of total.