Fitch Affirms Itabo's Foreign & Local Currency IDRs at 'B-'; Outlook Positive

Business Wire, May 1, 2008

CHICAGO & CARACAS, Venezuela -- Fitch Ratings has affirmed Empresa Generadora de Electricidad Itabo, S.A.'s (Itabo) Issuer Default Ratings (IDRs) and outstanding debt ratings as follows:

Itabo

--International foreign currency IDR 'B-';

--International local currency IDR 'B-';.

--National scale 'BBB(dom)'.

Itabo Finance S.A.

--US$125 million of senior notes due 2013 'B-/RR4'

The Rating Outlook is Positive.

Itabo's ratings incorporate the risks of operating electric generation assets in the Dominican Republic (DR), where distribution companies have historically reported poor operating performance, characterized by very high losses and low collections. Itabo's ratings and positive outlook are supported by its strong competitive position as the lowest cost thermoelectric generator in the country, as well as its somewhat solid financial profile and experienced management team. Itabo operates two low-cost, coal-fueled electric generation units and sells electricity to three distribution companies through well-structured, long-term U.S-dollar-denominated purchase power agreements (PPAs).

While multiple offtakers diversify its revenue stream, and long-dated PPAs mitigate price and volume risks, Itabo could face collection risks from the electric distribution companies, which continue in the process of improving their own losses and collection rates. Itabo's collection rates remain solid mainly due to government subsidies to distribution companies to meet their obligations with generators. This committed financial support, along with distribution companies' initiatives to reduce losses, is moderately helping to stabilize the system.

Itabo's financial performance is considered to be somewhat strong for the rating category. Interest coverage, as measured by EBITDA-to-interest, was 2.5 times (x) as of year-end (YE) 2007. Leverage, as measured by Total Debt-to-EBITDA for the same period was 3.7(x). During 2007, Itabo reduced debt by approximately $20 million and paid dividends of US$46 million over 2006 gain and paid dividends in advance over 2007 gain for approximately US$12 million, reducing cash on hand from US$82.6 million as of year end 2006 to US$4.7 million as of Dec. 31, 2007. Even though cash was reduced, Itabo's financial profile remains solid within the rating category. During 2007, operating income was negatively affected by scheduled and unscheduled outages, mainly caused during Hurricane Dean and Tropical Storm Noel, coupled with higher cost of electricity sales, lowering EBITDA margin from approximately 21% during 2006 to 17% during 2007.

The DR electricity sector remains highly dependent on government support and subsidies. The current administration continues to strongly support the sector by committing subsidies for distribution companies and implementing law reforms aimed to reduce losses. The Dominican congress approved changes to the electricity law that, among other things, criminalizes electricity theft. This reform to the electricity law is expected to slowly reduce theft, increase paying conscious of the Dominican Republic population and slowly increase the cash recovery index of the sector.

The Positive Rating Outlook reflects the favorable operating conditions of the company within the local market, the Dominican government's continued support of the sector, the different steps taken by the government and sector participants in an effort to bolster the sector, and the country's recent economic recovery. An upgrade of Itabo's rating could be triggered if the sector continues its current path to recovery and self-sustainability, thereby lowering its dependency upon government's subsidies.

Itabo is a thermo-electric generator in the DR and the second largest generation plant in the country. Itabo has a total installed capacity 433 MW of thermo-electric generation as of December 2007. Itabo is currently owned 50% by AES Corp.'s subsidiaries and 49.97% by the DR government. The balance is owned by former employees of CDE (Corporacion Dominicana de Electricidad). As previously noted, AES Dominicana manages the company under a management contract, for a fee of 2.95% of Itabo's sales, while AES Corp. indirectly controls Itabo's management board.

Itabo's 'RR4' Recovery Rating is constrained by the DR's RR cap. The company's recovery analysis is based on the lowest EBITDA reported by ITABO during the past three years to estimate a stressed enterprise value.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.