Fitch Affirms Endesa-Chile's IDR at 'BBB+ / AA(cl)'; Outlook Stable

Fitch Ratings has affirmed the foreign and local currency Issuer Default Ratings (IDRs) of Empresa Nacional de Electricidad S.A.'s (Endesa-Chile) at 'BBB+' and its long-term national scale rating at 'AA (cl)'. In addition Fitch has affirmed Endesa-Chile's short-term national scale rating at 'F1+ /AA (cl)' and its national Equity Rating at 'Primera Clase Nivel 1 (cl)'. These rating actions affect approximately USD917 million of outstanding Yankee bonds and USD778 million of domestic bonds. The Rating Outlook is Stable.

Endesa's ratings reflect a moderate risk business profile underpinned by the company's conservative commercial strategy and geographical diversification, operations in constructive regulatory environments, and strong financial metrics. Endesa-Chile's ratings are aligned to those of Enersis S.A. due to the strong legal, operation and strategic ties. The Stable Outlook is driven by Endesa Chile's adequate liquidity profile and credit metrics.

Credit risks associated with the company include possible pressures from the shareholder Enel S.p.a. ('A-' IDR by Fitch) to increase dividends, possible environmental and/or political issues which could result in cost overruns or modifications of projects under construction, regulatory uncertainties in Argentina (which only represents 5% of EBITDA), although these risks appear manageable.

Conservative Commercial Policy

Endesa-Chile's conservative commercial policy is a key strength to reduce the company's exposure to hydrology risk as hydroelectric capacity represents 58% of its generation matrix. The company's commercial policies limit the contracted volume to the Endesa Chile's efficient generation capacity under different scenarios. Nevertheless, in a situation of draught, as it occurred in Chile in 2011, the company needs to buy energy in the spot market to fulfill its contracts. Geographic diversification through Latin America provides a natural hedge to different regulations and weather conditions.

The company has a strong competitive position in Chile which represents 52% of consolidated EBITDA. In Chile, the company's exposure to commodity fuel price risk is mitigated by contracts that include price indexation mechanisms that recognize a significant portion of fuel price variations. Also, the company has access to competitive natural gas from its 20% ownership in Quintero liquefied natural gas (LNG) regasification facility, which provides 3.2 million cubic meters of natural gas per day (Mil cm/d) to Endesa-Chile. Access to lower cost natural gas, favorably positions the company against its competitors that use higher cost fuels. In 2011, while Chile was affected by a draught, the company's power plants San Isidro were able to operate continuously with such gas.

Moderate Medium Term Expansion Program

As expected, Endesa-Chile has reduced the expansion rate of its generation capacity, after adding 1,638 MW of power capacity between 2005 and 2009. The company is currently focused in the construction of Bocamina II, 370MW coal plant in Chile and Quimbo 400 MW hydroelectric plant in Colombia. Bocamina II is expected to begin operations by mid- 2012, with a delay of more than one year due to the earthquake of Feb. 27th, 2010. The impact of such delay in a year of severe draught was partially mitigated by the company's conservative commercial policy and the constant operation of its plants San Isidro I and II with competitive natural gas from LNG Quintero. Endesa Chile is insured against business interruption.

Quimbo is expected to require a USD841 million investment and begin operations in December 2014. Endesa Chile continues the studies to construct Hydroaysen hidro power plant with an installed capacity of 2,750MW and has several other projects under study for approximately 1,700MW.

Strong Credit Metrics

Fitch expects Endesa-Chile to maintain a relative stable EBITDA of approximately USD 2.0 billion per annum in 2011 - 2015, with an annual capex of approximately USD700 million in 2011, gradually decreasing as Bocaminas II construction is finalized to a level of USD400 to USD500 million per annum. Fitch expects future capacity additions will not require additional indebtedness as the company is expected to maintain a positive free cash flow.

Endesa Chile's credit profile is supported by ample consolidated liquidity with USD540 million of cash as of September 2011 and access to a USD489 million of unsecured revolving credit lines. Total debt as of September 2011 was USD4.0 billion. Debt maturities are manageable of USD387 million due in 2012, USD525 million due in 2013 and USD372 million due in 2014. Fitch expects the company will refinance a portion of its debt maturities, while interest coverage, as measured by EBITDA-to-interest is above 5.0 times (x) and leverage as measures by net debt-to-EBITDA to remain below 2.0x, between 2011 - 2015.

As of September 2011, Endesa-Chile's EBITDA (LTM) was USD1.8 billion, below Fitch's expectations due to lower spot sales in Chile and higher energy purchases due to low hydrology and the one time impact of a tax reform in Colombia. Nevertheless, the company's credit metrics remained strong, and were reflected in an EBITDA-to-interest of 7.7x and net debt-to-EBITDA of 2.0x.

Endesa-Chile is the largest electricity generation company in Chile, owns and operates approximately 34% of the country's total generating capacity, and operates 41% of the Central Interconnected System (SIC) and 15% in the Northern Interconnected System (SING), installed capacity, respectively. Endesa-Chile also has ownership interests in electric generation in Argentina, Colombia, Peru and Brazil. The company is 59.9% owned by Enersis, a diversified utility holding company based in Santiago, Chile (Fitch IDR of 'BBB+'). In turn, Enersis is 60.6% owned by Endesa-Spain (Fitch IDR of 'A-'), Spain's largest electrical utility. Endesa-Spain's ratings are linked to - and capped by - those of its majority shareholder (92%), Enel SpA, based on strong legal, operational and strategic links.

Fitch has affirmed Endesa-Chile's ratings as follows:

--Senior unsecured notes USD400 million due 2013 at 'BBB+';

--Senior unsecured notes USD200 million due 2015 at 'BBB+';

--Senior unsecured notes USD230 million due 2027 at 'BBB+';

--Senior unsecured USD220 million notes due 2037 at 'BBB+';

--Senior unsecured USD40 million notes due 2097 at 'BBB+';

--Senior unsecured CLF1.5 million notes due 2022 at 'AA(cl)';

--Senior unsecured CLF4 million notes due 2028 at 'AA(cl)';

--Senior unsecured CLF4 million notes due 2027 at 'AA(cl)';

--Senior unsecured CLF10 million notes due 2029 at 'AA(cl)';

--Commercial paper USD35 million at 'F1+/AA(cl)';

--Commercial paper USD45 million at 'F1+/AA(cl)';

--Commercial paper USD45 million at 'F1+/AA(cl)';

--Commercial paper USD75 million at 'F1+/AA(cl)'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Research:

--'Corporate Rating Methodology' (Aug. 12, 2011);

--'Parent and Subsidiary Rating Linkage' (Aug. 12, 2011).

For the national ratings Fitch used the methodologies filed with the local regulator.

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210

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