Genneia S.A. -- Moody's assigns B3/A3.ar ratings to Genneia's up to ARS 150 millon notes; outlook stable

The notes are being jointly offered to complete up to ARS 150 million, on the following conditions:

Class IX, for up to ARS 25 million, variable interest and payable in full at maturity -- 18 months from the issuance date.

Class X, for up to ARS 25 million equivalent in pesos (approximately USD 5 million), fixed interest rate, amortizing, with final maturity 24 months from the issuance date.

Genneia will use proceeds from the new notes to repay other short term debt and to complete the financing of its 2012 investment program.

Recent Events

On September 28th, 2012 Moody's upgraded Genneia's NSR to A3.ar from Baa1.ar and affirmed the B3 rating on the global scale while changing the outlook to stable from positive.

The upgrade on Genneia's NSR was mainly prompted by Genneia's successful completion and startup of its 80 MW wind farm project in Rawson. In addition, the upgrade factored in Genneia's revenues arising from its other business line, Energía Distribuida (ED) which gained greater predictability due to the extension of the term of the contracts under the framework agreement reached in April by the company and the Energy Secretariat.

RATING RATIONALE

The B3/A3.ar are supported by our expectation of stable cash flows arising from its wind and "energía distribuida" operations and moderate leverage.

The wind generation that entered into commercial operations early this year is producing energy in line with expectations and stable revenues under a long term, fixed price contract. In addition, in spite of reduced prices under the renewed ED contracts, the company has extended its contractual horizon to 7 years from the original 3 year contract. This agreement going forward should also generate stable revenues of approximately USD 120 million per year .

The ratings are also supported by the various payment mechanisms available for debt repayment. Most of Genneia's outstanding debt is payable from direct transfers to a trustee arising from collections under the Res. 220 ED contracts and by payments under the off-take contract with Cammesa for the wind farm production, which has a fixed price per MWh for a 15-year period. Consequently, Genneia's improved operating performance after the initial delays in the implementation of its ED project should result in significant debt reduction over coming years.

Nevertheless, the ratings remain constrained by the concentration of its operations in only the Argentinean electricity power market, which has been highly unpredictable in recent years. Furthermore, most of Genneia's cash flows arise from contracts where the off-taker is Cammesa, a federal government agency that administers the wholesale electricity market in Argentina. Cammesa administers not only the operation of the wholesale power system but also manages all of the collections and payments associated with the system. Since the price paid for electricity by most consumers is not enough to cover electricity production costs, Cammesa faces an ongoing operating deficit that is currently financed with federal government resources to facilitate payments to the producers. Consequently, this represents a high degree of exposure to the Argentine government credit risk (B3, Negative), which adds a constraint to the ratings.

Additional constraining factors are Genneia's relatively tight liquidity and limited financial flexibility. In particular, we see Genneia's limited flexibility under its current bank loan covenants as challenging over the short term. Longer term, we expect Genneia's operations to stabilize which should cause leverage to decline and financial flexibility to improve.

The stable outlook reflects our expectation that Genneia will stabilize its cash flows and operations as it approaches the end of the current fiscal year with leverage reducing over time.

Negative pressure on the ratings or outlook could occur if Genneia's financial policy becomes more aggressive than expected. Specifically, we would become concerned should debt to EBITDA exceed 4.5x times; interest coverage (CFO pre WC + Interest/Interest) falls below 1.5x or RCF /Debt becomes lower than 15%.

The ratings could also come under downward pressure if payments from Cammesa begin to experience significant delays. In addition, given Genneia's exposure to the Argentine government credit risk, a negative rating action at the sovereign level could also add further downward rating pressure.

Given the recent up-grade of the NSR and the current constraining factors, limited prospects exist for a further upgrade over the near term.

Longer term a rating up-grade would require Genneia to continue to generate stable cash flows from its ED business and from its wind generation farm for which we would expect capacity realizations of around 40%. Quantitatively, a rating upgrade would require Genneia to generate CFO (pre WC) to debt of above 20%, and positive levels of FCF on a sustainable basis.

Genneia S.A., headquartered in the province of Buenos Aires, Argentina, initiated operations in 1991 in the gas distribution and transportation business under its previous denomination "Emgasud". However, since 2008 power generation has been its main business, contributing more than 80% of its total revenues. For the last 12 months ending June 2012, Genneia reported revenues of approximately USD 150 million.

Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".mx" for Mexico. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Methodology published in October 2012 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

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Daniela Cuan Vice President - Senior Analyst Corporate Finance Group Ing. Butty 240 16th Floor Buenos Aires City C1001AFB Argentina William L. Hess MD - Utilities Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Latin America Ing. Butty 240 16th Floor Buenos Aires City C1001AFB Argentina JOURNALISTS: (800) 666 -3506 SUBSCRIBERS: (5411) 5129 2600 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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