Santiago, August 2009 Corporate Bond Issue up to UF 7,900,000 Arranger and Placement Agent
Contents I. SHAREHOLDER S MESSAGE Michael Botha Brookfield II. RATIONALE FOR THE ISSUE Andrés Kuhlmann Transelec III. THE TRANSELEC BUSINESS Andrés Kuhlmann Transelec IV. FINANCIAL ANALYSIS Marcelo de Petris Transelec V. CREDIT HIGHLIGHTS Andrés Kuhlmann Transelec VI. CHARACTERISTICS OF THE ISSUE Sebastián Cereceda LarrainVial 2
Chapter I Shareholder s message
Shareholder s message Brookfield Consortium Strong Sponsorship The Brookfield Consortium provides Transelec with a group of long-term investors who have substantial financial strength and a shared commitment to invest in long-lived infrastructure assets. Brookfield Consortium Ownership PSP Investments 18% Brookfield 28% CPP Investment Board 28% British Columbia IMC 26% Brookfield Consortium Brookfield Asset Management Asset management over US$ 80 billion Cash flow generation over US$ 1.5 billion Long term investment vision (20 to 30 years) CPP Investment Board Directed and managed independent from government Asset management over US$ 95 billion Plan to increase infrastructure investment portfolio bcimc Investment Management Corporation Asset management over US$ 80 billion Clients: pension funds, provincial governments, public funds and insurance funds PSP Investments Public Federal Service, Canadian Army and Royal Canadian Mounted Police Pension Funds Annual contributions of approx. US$ 4 billion 4
Strong Sponsorship Shareholder s objective As long-term shareholder s the Brookfield Consortium s objectives for Transelec include: Maintaining investment grade rating Operating Transelec to generate highly-stable cash flows over the long-term Re-investing capital to maintain and grow the Transelec system Maintaining Transelec s current operating and business strategy while complementing the management team with expertise in selected areas (finance, corporate development) 5
Shareholder s message Brookfield Power Vast Experience in the Electric Sector Brookfield Power is the operational platform of Brookfield in the electric sector, with over US$15 billion assets under management Brookfield Power Renewable energy generation Brookfield Power has over 100 years of operational expertise in transmission sector: Transmission development capability Managed construction of billion of dollars of projects in power sector Executed billion of dollars of financing in power sector Transelec investment represents a significant expansion of the Brookfield Franchise Diversified generation assets: 163 hydroelectric stations, 63 river systems and 1 wind energy generation field Flexible production: Production capacity with more than 3.400 GWh. of storage capacity Revenue stability: 75% of revenue is under 2 year contracts Electric transmission Transmission is a core area of growth for Brookfield Transelec substantially enhances Brookfield presence in South America Brookfield, through its Advisory Service Agreement, gives operational and financial support to Transelec. 80 years of experience as owners and operators of transmission assets High quality assets: more than 8,800 kilometers of transmission lines Growth opportunity: Significant expansion opportunities with attractive return 6
Chapter II Rationale for the Issue
Executive summary Rationale for the Issue Seek to place up to UF 7,900,000 worth of Transelec bonds (rated: A+ Feller/ A+ Humphreys/ A FitchRatings) in local market Proceeds from this issue will be used to refinance a portion of the Company s outstanding financial debt The liabilities to be refinanced are a portion of the144a bonds issued by the Company in the US with maturity in 2011 (USD 465 million) A portion of these 144A bonds are planned to be repurchased through a Tender Offer The repurchase will significantly reduce the amount to be refinanced by 2011, improving the Company s long-term debt maturity profile 8
Executive summary Credit highlights Essential Infrastructure Asset Superior Regulatory Framework through Short Law I Strong Sponsorship Highly Stable Cashflow Profile Substantial Economies of Scale Investment Grade Ratings with Favorable Credit Protection for Bondholders 9
Chapter II The Transelec Business
Transelec Transelec: Relevant Business Electric transmission system Transelec is active in the electric transmission business The transmission system is comprised of: Generators Regulated systems Trunk System: lines and substations to supply overall demand (rated voltage equal to or in excess of220 kv). Sub-transmission System: lines and substations to meet the needs of customers within the concession areas of distribution utilities. Additional Trunk System Additional Non Regulated systems Additional Systems: facilities used to connect power stations with the Trunk or Subtransmission Systems and supply electricity to non-regulated users. Subtransmission Additional Additional Subtransmission Distributors Consumers Consumers Distributors 11
Transelec Transelec: Largest Electric Transmission Company in Chile Transelec is Chile s largest electric transmission company, with over 65 years experience. Transelec represents essential infrastructure in the Chilean economy Its network stretches over 8,204 Km of transmission lines, equipped with 49 substations between Arica and Chiloe The only owner of 500 kv lines that represent the backbone for Chile s electric transmission system The Company has a 98% of market share in the Trunk System of the SIC and a 100% of the SING Transelec Market Share 500 kv lines 220 kv lines Transelec 100% Transelec 45% Map of Chile Other 55% 154 kv lines 110 and 66 kv lines Transelec 94% Transelec 11% Other 6% Other 89% 12
Transelec Stable and Pro-Investment Regulatory Environment Chile was one of the first countries to deregulate its electric system (in 1982) and subsequently privatize it (in the early 1990s) Long-standing tradition of transparent, stable regulatory frameworks Laws governing the Chilean electric sector: Statutory Decree Nr. 4 ( Electric Utilities Act ) Law Nr. 19,940 ( Short Law I ), year 2004 Short Law I Establishes a robust regulatory framework that will remain stable over time. Ensures a real rate of return, codified by law, on the replacement market value of the transmission assets. Defines pricing rules for existing transmission assets. Encouraged new investments in transmission by defining the pricing rules for new assets as required. Enhanced transparency in calculating revenues and dispute resolution mechanism (Experts Panel) 13
Transelec Stable Revenue: Long-Term contracts and regulated business The Company s main sources of revenue are: Revenue from regulated assets in the Trunk and Sub-transmission Systems Revenue under long term bilateral contracts for the use of additional, unregulated facilities The procedures used to calculate regulated revenue depend on the transmission system Trunk System (take or pay) Sub-transmission System (by volume) Additional Systems with bilateral contracts (take or pay) Revenues compound 1 (at June 2009) Sub-transmission revenues 12% Contractual revenues 33% Trunk revenues 55% 1 Trunk revenues include revenues from contracts in 27% 14
Transelec Revenue structure Revenue = AIV 1 + OMAC AIV = annuity value of IV, calculated on the basis of a real discount rate of 10% over the useful life of existing assets OMAC= operation, maintenance and administration costs Regulated revenues: The definitive indexation formulas are stipulated in the Trunk Transmission and Sub-transmission studies. At present, trunk revenues are indexed monthly and sub-transmission revenues every 6 months. IV, OMAC, the useful life of assets and indexation formulas are redefined every 4 years by an independent consultant. The definitive rates are subject to the decisions of the Expert Panel. Monthly revenues of Sub-transmission systems correspond to a unit tariff apply to the volume of electricity taken from the system Contractual revenues: IV, AIV and OMAC, useful life and indexation formulas are expressly considered in the respective contracts, which for the most part are scheduled to expire in 2016-2018. Once these contracts expire, approximately 50% will revert to the short law. ESEDEI formula: indexed every 6 months; formula considers that effectively 73% of costs are Peso based and escalates these with Chilean inflation and effectively 27% of costs are US$ based and escalates these with US inflation. Transelec Norte: Denominated in US$ and readjusted at a fixed annual rate of 0.7% Over time, revenue will automatically increase because of indexation and investments deemed eligible for those purposes, resulting in increased cash flow over the long term 1 AIV: Annualized Investment Value (IV) 2 ESEDEI: Formula created by consultants ESEDEI Ingenieros 15
Transelec Essential service for its customers Electric generation companies are Transelec s main customers: Revenue per customer (at December 2008) Payment of charges to transmit the energy generated Distribution companies deliver the energy to end customers The main three customers, all which have strong investment grade rating, account for 84.5% of the Company s revenue as of December 2008 Endesa & related 70% Colbún 8% Gener & related 6% GasAtacama 5% Others 11% Transmission of energy delivered by the generation companies to the distributors is vital for these companies businesses Source: The Company The high quality standard of the assets and the operation and maintenance processes have allowed Transelec to deliver a high quality service to its clients 16
Transelec Growth of Transelec s Investment Value Over the past 5 years, the IV in Transelec has grown on average at a nominal 10.7% per annum, from US$ 1.2 billion in 2003 to US$ 2.0 billion in 2008. This growth is explained by: Asset acquisitions Transmission projects start-ups Inflationary indexation formulas Growth in IV increases revenues from both regulated as well as nonregulated customers Transelec IV evolution (US$ billion) 1.986 1.494 1.544 1.591 1.657 929 1.138 1.063 1.191 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: The Company *CAGR: Compounded Annual Growth Rate 17
Transelec Charting a Path of Sustained Growth Competitive advantage due to scale of Transelec s operation as well as experience in construction results in an advantage in building new lines which enables Transelec to win business in a prudent manner Because of its experience in the electric transmission business, Transelec is the company that has been awarded the most expansion projects, allowing it to grow in terms of investment value (IV) Summary of decrees in 2005-2009 (1) US$ millions 2005-2006 2007-2008 2009 Expansions 85.2 6/6 106.0 22 / 23 12.9 3/3 New Works 17.8 2 / 3 46.6 1/1 184.2 Project is undergoing an international bidding process (1). 1 Amounts assigned and awarded to Transelec 18
Chapter III Financial Analysis
Financial Analysis Stable Flows and Constant Growth Revenues evolution (CLP billion) Revenues Non-recurrent revenues* 136 141 141 139 22 158 22 69 86 2004 2005 2006 2007 2008 Jun-08 Jun-09 Source: SVS & the Company Very stable revenues over past 5 years Despite financial crisis in 2008, Transelec s revenues remain stable During 2008, the tariff process for the trunk system was finalized providing an increase in revenue for prior periods EBITDA evolution (CLP billion) EBITDA Non recurrent EBITDA EBITDA Margin 22 Very stable EBITDA and cash operational costs over past 5 years 86,7% 85,7% 84,6% 84,6% 116 122 119 117 85,3% 131 22 59 72 High margins due to low operation costs 2004 2005 2006 2007 2008 Jun-08 Jun-09 Source: SVS & the Company *The 2008 non-recurrent revenue is due to: - Revenue from the Trunk system due to the application of a decree which fixes new rates from March 2004 to December 2007: $19.3 billion - Agreement with Puyehue S.A. and Panguipulli S.A. for US$ 2.3 million. 20
Financial Analysis Indebtedness ratios* Leverage 1 Financial Leverage 2 Solid investment grade credit metrics 1,05 1,02 1,00 1,05 0,95 0,97 0,94 0,94 0,93 0,88 Leverage levels have decrease due to the increase of results and the maintenance of debt levels. 2006 2007 2008 Jun-08 Jun-09 Source: SVS and the Company Financial Expense Coverage 3 2006 2007 2008 Jun-08 Jun-09 Source: SVS and the Company Financial Debt / EBITDA 4 Transelec has improved its debt payment capacity in the last 3 years 1 (ST Debt+ LT Debt) / (Eq. + Min. Int.) 2,45 3,10 3,33 2,98 3,86 6,72 6,85 6,17 6,92 5,23 2 Financial Debt/ (Eq. + Min. Int.) 3 EBITDA / Financial Expenses, EBITDA at Jun-08 and Jun-09 considers LTM 4 EBITDA at Jun-08 and Jun-09 considers LTM *Indebtedness exclude nonrecurrent incomes during 2008 2006 2007 2008 Jun-08 Jun-09 2006 2007 2008 Jun-08 Jun-09 Source: SVS and the Company Source: SVS and the Company 21
Financial Analysis Debt Maturity Profile Debt maturity profile (UF millions) 16 14 12 10 8 6 Refinancing to long term Local bonds Yankee Bonds The Company has an adequate debt maturity profile, and the current transaction will allow it to refinance part of the 2011 maturities ahead of schedule 4 2 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Source: SVS and the Company Post-financing debt structure Coverage Total Debt : US$ 1.407 billion Corporate bonds (local) 86% Yankee bonds 14% Post-financing, Transelec s currency mix remains 86% UF and 14% US$ Ongoing financing for Transelec, mostly using long-term UF bullet bonds Consistent with the share of cash flow denominated in local currency Well-suited to the nature of Transelec s long-term assets. Source: SVS and the Company 22
Financial Analysis Liquidity Transelec s Liquidity (CLP billion) Liquidity Strategy: Cash an cash equivalents Credit Line (Capex) Credit line (Working capital) App. US$ 60 million in working capital facilities Additional US$ 125 million facility for Capex or debt rescheduling, from which funds may be drawn until September 2010 32 68,8 38 Brookfield Consortium has significant financial resources to support the investment plan in infrastructure assets 15,4 15 32 64 30 33 67 2005 2006 2007 2008 23
Chapter IV Credit Highlights
Credit highlights Credits highlights Essential Infrastructure Asset Essential component of Chile s electricity system and integral to Chile s continued economic growth Transelec transmits electricity to 99% of Chile s population Superior Regulatory Framework through Short Law I Key components, including 10% rate of return on the market value of the transmission assets, are enacted in law. Provides return on inflation indexed rate base generating a real revenue stream Substantially improved revenue collection through a very simplified payment mechanism. Enhanced revenue transparency and dispute resolution mechanism (Experts Panel) Highly Stable Cashflow Profile Revenues derived from regulated tariffs and long-term contracts Essential service for its customers High quality, modern asset base with low level of sustaining capital expenditures Strong EBITDA margins Substantial Economies of Scale Transelec owns 98% of the trunk transmission system Dominant market presence with sustainable competitive advantage Regulatory environment very supportive of additional investment in Trunk transmission Strong Sponsorship Transelec sowns shareholders 98% of the trunk are long-term transmissioninvestors system. that provide a unique combination of operational expertise, Dominant market presence with sustainable competitive significant financial strength and shared desire to re-invest advantage. in long-lived infrastructure assets Investment Grade Ratings with Favourable Credit Protection for Bondholders Bondholders benefit from financial covenants and restrictions on distributions (including 6 months debt service reserve account) Objective of all sponsors is to maintain investment grade ratings 25
Chapter V Characteristics of the Issue
Characteristics of the Issue Main Characteristics* Series Series E Series F Series G Series H Maximum amount to be placed Maximum amount equivalent to UF 7,900,000 Amount by series Up to 7,9 million UF Up to $160 billion Up to 7,9 million UF Up to 7,9 million UF Amortization Bullet Bullet Bullet Bullet Currency UF $ UF UF Nominal rate 3.90% 5.70% 4.20% 4.80% Maturity 5 years 5 years 10 years 22 years App. duration 4.6 years 4.4 years 8.2 years 13.9 years Interest payment Semi-annual Semi-annual Semi-annual Semi-annual Redemption date From August 01, 2012 From August 01, 2012 From August 01, 2013 From August 01, 2019 Redemption method The highest value between: (i) the present value calculated at reference rate plus a 80 bps and (ii) par value. Use of proceeds Refinancing of liabilities Rating Feller-Rate: A+ Humphreys: A+ FitchRatings: A *The series presented are nowadays in process of approval at the SVS 27
Characteristics of the Issue Main Characteristics Maintain a Total Debt/Total Capitalization ratio lower than 0.7 times. (Actual level: 0.49 at june 09) Financial covenants Maintain a minimum consolidated Equity of 15,000,000 Unidades de Fomento (Actual level: 42,796,511Unidades de Fomento at june 09) Transelec must restrict its business to what is established in its social statements. Prohibition to sell, cede or transfer Essential Assets for more than 5% of the Consolidated Assets of the Issuer. Negative Pledge. Other covenants Cross-default and cross-acceleration Distribution test for restricted payments: i. The issuer is not in default and that situation is still ongoing ii. iii. Financial Costs coverage (FNO*/financial expense > 1,5x) Performance of Debt Reserve Account Contract *FNO = Net Flow from Operations + absolute value of Financial Expenses + absolute value of Income Tax 28
Characteristics of the Issue Timetable July 09 L M W J V S D 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 August 09 L M W J V S D 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Timetable of activities Individual presentations Expanded presentation Receipt of orders Placement August 3th August 7th August 5th August 10th August 11th August 12th 29