Fitch Upgrades Enersis to 'BBB'; Stable Outlook

Business Wire, May 2, 2006

CHICAGO -- Fitch Ratings has upgraded the local and foreign currency Issuer Default Ratings (IDRs) of Enersis S.A. to 'BBB' from 'BBB-' and the Outlook is now Stable. The unsecured debt ratings is also 'BBB' and applies to the company's $1.1 billion of Yankee bonds. The Chilean National Scale rating has been affirmed at 'A (chl)' with a Stable Rating Outlook.

The upgrade of Enersis recognizes the sustained improvements in credit protection measures since early 2004, a more manageable amortization profile, and generally positive sector fundamentals. Operating income at both Enersis and its 60%-owned subsidiary, Empresa Nacional de Electricidad S.A. (Endesa-Chile), continues to grow reflecting higher electricity prices, improved regional economic conditions, further demand growth, and lower regulatory uncertainties. These trends are expected to continue allowing for additional modest improvement in interest coverage and leverage ratios.

Enersis is currently 60.62%-owned by Endesa S.A. (Fitch IDR of 'A', Rating Watch Negative) and there are two competing takeover bids for the company from E.ON AG (Fitch IDR 'AA-', Rating Watch Negative), and Gas Natural SDG. Any change in Enersis' ultimate shareholder should not immediately affect the ratings of Enersis or Endesa-Chile. However, longer term, the companies' credit profiles would reflect the degree to which any new shareholder changes Enersis' and Endesa-Chile's financial and/or growth policies and strategies. There remain numerous regulatory, administrative, and political issues to be clarified and resolved, which is unlikely to occur in the very near term.

The ratings of Enersis are additionally supported by a diverse portfolio of assets, including companies that are financially strong and have market leadership positions that benefit from generally constructive regulatory environments, with the exception of Argentina, and growing regional electricity demand. The ratings also incorporate the continued exposure to the overall weaker sovereign ratings of Argentina, Colombia, Peru, and Brazil, which increases the risk of the cash flows received by Enersis and Endesa-Chile from their respective investments in these countries.

Enersis has improved its leverage position, as measured by debt-to-EBITDA, to 2.5 times (x) for the first quarter of 2006 and 2.8x for full-year 2005, from 3.5x and 4.0x in 2004 and 2003, respectively. The improvement reflects relatively stable consolidated debt levels of US$6.9 billion and increasing consolidated EBITDA, which grew 15.9% in the first quarter of 2006, 27% in 2005, and 6.4% in 2004. The growth in EBITDA was primarily due to continued demand growth and stable to higher energy prices, and improved operating cost management. In 2005, Enersis generated an estimated 34% of its total consolidated EBITDA from Chilean operations. Enersis reported consolidated EBITDA-to-interest for 2005 of 3.3x, compared with 2.8x in 2004 and 2.2x in 2003. Through the first quarter of 2006, EBITDA-to-interest improved to 3.9x.

Enersis has direct debt of US$1.2 billion, which includes US$328 million of Yankee bonds maturing in December 2006. The company has adequate liquidity to repay this maturity with a combination of Chilean operating cash flow, funds received from subsidiaries, and availability under the company's US$350 million revolving credit facility. The revolver matures in 2008. Thereafter, the company's next Yankee bond maturity is 2014, mitigating medium-term liquidity concerns at the Enersis level.

Fitch remains concerned about future interruptions of natural gas supply from Argentina; however, the consolidated financial effect on Enersis in 2006 is expected to be somewhat positive (primarily through Endesa-Chile). Enersis and Endesa-Chile are expected to manage the gas issue effectively on both the distribution and generation sides. For Chilectra, power purchases at node price are a pass-through to end-users, and any failure of the energy supply should be compensated by the generators.

For Endesa-Chile, the addition of the 690-MW (megawatt) Ralco hydroelectric plant in September 2004, its manageable supply contract levels, and higher regulated node prices should provide sufficient mitigants to gas interruptions under normal hydrological conditions. To date, reservoirs are at normal levels, and the country should be able to meet total electricity demand adequately without relying on forced rationing.

Enersis and Endesa-Chile are expected to face some seasonal and regional volatility in cash flow due to fluctuations in natural gas availability, hydrological conditions, energy prices, and currencies, all of which are incorporated into the assigned long-term credit ratings.

Enersis is the largest private electricity distribution group in Latin America. The company has varying ownership interests in electric-distribution companies in Argentina, Brazil, Chile, Colombia, and Peru; electric-generating companies in Argentina, Brazil, Chile, Colombia, and Peru through Endesa-Chile; and electric utility related service companies throughout Latin America.