Fitch Affirms AES Panama's 'BBB-' IDR; Outlook Stable

Fitch Affirms AES Panama's 'BBB-' IDR; Outlook Stable

---

Fitch Ratings-Chicago-23 October 2008: Fitch has affirmed AES Panama, S.A. 'BBB-' foreign and local currency issuer default ratings (IDRs). This rating action applies to $300 million in senior unsecured notes due December 2016. The Rating Outlook is Stable.

AES Panama's ratings are based on the company’s strong portfolio of assets, competitive dispatch position, solid multiple power purchase agreements (PPAs), adequate financial profile, healthy projected debt service coverage under various stress scenarios, and the absence of foreign-exchange risk. The ratings also incorporate potential weaknesses, including exposure to hydrology, commodity price risks, regulatory considerations and potential for long-term competitive price pressures.

AES Panama benefits from a portfolio of existing low-cost hydroelectric generating assets, including dam-based (reservoir) and run of the river units. The company is comprised of four hydroelectric plants with a total installed capacity of approximately 482 MW. The Bayano plant (260MW) operates during the peak load hours yet ahead of the more expensive thermal units. La Estrella (48MW) and Los Valles (54MW) are run of the river facilities and the first units to be dispatched in the system. Esti (120 MW) is dispatched similar to run of the river facilities given the limited size of its reservoir. AES Panama's pool of assets gives the company a very competitive position and somewhat mitigates it's exposure to hydrology risk as the plants are located in different hydrology regions.

The company is well protected against off-taker and electricity spot market risks. Generators in Panama are permitted to enter into PPAs for up to their firm capacity allocation. The regulations promote the use of PPAs by requiring distribution companies to secure 100% of their peak regulated demand for the following year. AES Panama benefits from well-structured PPAs through 2020. The company currently sells electricity under separate PPAs with the country's three distribution companies, Empresa de Distribucion Electrica Metro-Oeste S.A. (Edemet), Elektra Noreste (BBB IDR by Fitch), and Empresa de Distribucion Electrica Chiriqui (Edechi), with various maturities. AES Panama also has PPAs with other industrial companies in the country. Panamanian distribution companies appear to have the sufficient credit quality and financial ability to support their respective obligations under the PPAs with AES Panama.

AES Panama's credit metrics are adequate for the rating category. The company reported a financial leverage, measured as total debt to EBITDA of 2.7 times (x) and 3.2(x) as of year end 2007 and 2006, respectively. Interest coverage for 2007 was healthy at 5.7(x). During the past five years, AES Panama's revenue has steadily increased due to installed capacity growth and high electricity spot prices in Panama.

The ratings of AES Panama are not constrained by the sovereign rating of Panama, as access to foreign exchange--the key determinant of external creditworthiness--is not limited by finite foreign-exchange reserves or controls. Panama's track record of using the U.S. dollar and allowing private-sector debt repayment during periods of sovereign default allows entities in Panama to be rated above the 'BB+' sovereign rating and up to a country ceiling of 'BBB+', based on the underlying corporate credit rating of the entity.

AES Panama is hydroelectric generation company located in the Republic of Panama. Privatized in 1998, the company is owned by AES Panama Energy 49%, the Government of Panama (GOP) 50.5% and employees 0.5%. Government ownership is not viewed as a constraint as AES Panama Energy has complete operational and managerial control of the assets under Articles of Incorporation and Administration Contracts and appoints three of the company's five directors.

Contact: Lucas Aristizabal +1-312-368-3260 or Marcelle Millet +506-296-9182, San Jose.