Fitch drops AES El Salvador to junk

Fitch Ratings said it downgraded AES El Salvador Trust's foreign- and local-currency issuer default ratings to BB+ from BBB-.

The action applies to the $300 million 6¾% political risk-protected bond issuance due Feb. 1, 2016. Fitch downgraded the issue's national scale rating to AA(slv) from AAA(slv).

The outlook is negative.

Fitch said the action reflects the company's increased exposure to political interference and regulatory uncertainty in the El Salvadorian electricity sector, as well as the recently implemented tariff reduction, which has increased leverage and business risk.

The downgrade also reflects the recently implemented tariff decrease for the period April 1 to Dec. 31, 2012, which significantly lowers the company's revenue and cash flow generation, according to the agency.

The revised tariff reduction will lower the company's cash flow generation, increasing leverage to more than 4 times from 3.5 times, Fitch said.

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