Moody’s Predicts Metrogas Workout

Moody’s has downgraded Metrogas to Caa3 from Caa1 and keeps the Argentine gas distribution utility on negative outlook amid concerns over a continued weak liquidity relative to the debt maturity profile. “Metrogas’ tariffs have remained frozen and inflation continues to erode margins and cash flow generation,” says the agency. “In addition, the peso devaluation has increased the size of its interest payments and upcoming principal payments associated with Metrogas’ dollar denominated debt as the company’s revenues and cash flow are in pesos.” Moody’s says that even if a provisional tariff increase is implemented and alleviates Metrogas’ tight liquidity, cash flow generation for required debt service is still expected to remain weak. “The negative outlook reflects the increased likelihood that Metrogas will need to restructure its debt obligations given the company’s weak liquidity profile, poor internal cash generation relative to internal funding requirements and the lack of a clear strategy to address the debt maturities which begin in 2010,” says Moody’s. Metrogas is controlled by GASA, a holding company that is controlled by BG Energy Holdings (54.7%; A2, stable) and YPF (45.3%; Ba1, stable).