Isagen S A ESP : S&P Global Ratings elevó la calificación crediticia a largo plazo de ISAGEN a BBB desde BBB-. La perspectiva es negativa.

ISAGEN, S.A. E.S.P. Rating Raised To 'BBB' From 'BBB-' Following Similar Action On Parent; Outlook Now Negative

Julyana Yokota, Sao Paulo +55 11 3039 9731; julyana.yokota@spglobal.com

Livia Vilela, Sao Paulo 55-11-3039-9775; livia.vilela@spglobal.com

Table Of Contents

Overview Rating Action Rationale Outlook

Ratings Score Snapshot Related Criteria Ratings List

ISAGEN, S.A. E.S.P. Rating Raised To 'BBB' From 'BBB-' Following Similar Action On Parent; Outlook Now Negative

Overview‌

• On Aug. 16, 2017, we raised ISAGEN's controlling shareholder Brookfield Renewable Partners L.P. long-term corporate credit rating to 'BBB+' from 'BBB', reflecting our view of potential financial support from its parent, Brookfield Asset Management Inc.

• Consequently, we're raising ISAGEN's corporate credit rating to 'BBB'

  from 'BBB-'.

• The outlook is now negative, mirroring that of Colombia.‌

  Rating Action

  On Aug. 16, 2017, S&P Global Ratings raised the long-term corporate credit rating on ISAGEN, S.A. E.S.P. (ISAGEN) to 'BBB' from 'BBB-'. The outlook is negative.

  Rationale‌

  Our upgrade of ISAGEN reflects the similar action on its controlling parent, Brookfield Renewable Partners L.P., and our understanding that ISAGEN remains a moderately strategic subsidiary of its ultimate parent. Considering that ISAGEN, a Colombia-based power generation company, represents 30% of the group's total installed capacity, we believe that it would likely receive support from Brookfield Renewable should it encounter financial difficulties. Despite not changing our view of support, our final rating raise on ISAGEN reflects our view of the group's overall improving creditworthiness and, therefore, its ability to support the subsidiary.

  The outlook is negative since, in our view, the strategic importance of ISAGEN to the parent is not strong enough to support the subsidiary under all circumstances, including a stress scenario associated with a default of Colombia. Therefore, ISAGEN's creditworthiness is limited to that of the sovereign's.

  Outlook‌

  The negative outlook mirrors that of Colombia.

  Research Update: ISAGEN, S.A. E.S.P. Rating Raised To 'BBB' From 'BBB-' Following Similar Action On Parent;

  Outlook Now Negative

  Downside scenario

  In the next 12 months, if we lower the rating on Colombia, we expect the one on ISAGEN to move in tandem. Also, ISAGEN's stand-alone credit profile (SACP) could be at risk if we were to expect a significant deterioration of the company's financial risk profile due to, for example, a more aggressive commercial strategy in the midst of worse hydrology conditions, leading to a debt-to-EBITDA ratio of above 4.0x and funds from operations (FFO) to debt below 20% consistently in 2017 and 2018. In this scenario, we could lower ISAGEN's SACP to 'bb+' and the rating to 'BBB-'.

  Upside scenario

  An upgrade is unlikely at this point, as the rating is limited by the rating on Colombia.

  Ratings Score Snapshot‌

  Corporate Credit Rating: BBB/Negative/-- Business risk: Satisfactory

• Country risk: Moderately high

• Industry risk: Moderately high

• Competitive position: Satisfactory

  Financial risk: Significant

• Cash flow/Leverage: Significant Anchor: bbb-

  Modifiers

• Diversification/Portfolio effect: Neutral (no impact)

• Capital structure: Neutral (no impact)

• Financial policy: Neutral (no impact)

• Liquidity: Adequate (no impact)

• Management and governance: Satisfactory (no impact)

• Comparable rating analysis: Neutral (no impact) Stand-alone credit profile: bbb-

  Group Status: Moderate Strategic (+1 notch)

  Related Criteria‌

• Criteria - Corporates - Industrials: Key Credit Factors For The Unregulated Power And Gas Industry, March 28, 2014

  Research Update: ISAGEN, S.A. E.S.P. Rating Raised To 'BBB' From 'BBB-' Following Similar Action On Parent;

  Outlook Now Negative

• Criteria - Corporates - General: Corporate Methodology: Ratios And Adjustments, Nov. 19, 2013

• Criteria - Corporates - General: Corporate Methodology, Nov. 19, 2013

• General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013

• General Criteria: Group Rating Methodology, Nov. 19, 2013

• General Criteria: Methodology: Industry Risk, Nov. 19, 2013

• General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009‌

Ratings List

Upgraded; CreditWatch/Outlook Action

ISAGEN, S.A. E.S.P.

To From

Corporate Credit Rating BBB/Negative/-- BBB-/Stable/--

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by this rating action can be found on the S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.

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