Feb 24, 2016
Executives
Ahmed Pasha - VP, IR Andres Gluski - President & CEO Tom O'Flynn - CFO
Analysts
Julien Dumoulin-Smith - UBS Ali Agha - SunTrust Robinson Humphrey Chris Turnure - JPMorgan Angie Storozynski - Macquarie Research Equities Stephen Byrd - Morgan Stanley Gregg Orrill - Barclays Capital
Operator
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Ahmed Pasha
Thank you, Allison. Good morning and welcome to AES' fourth quarter and full-year 2015 earnings call.
Our earnings release, presentation and related financial information are available on our website at Aes.com. Today we will be making forward-looking statements during the call.
There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors.
Joining me this morning are Andres Gluski, our President and Chief Executive Officer, Tom O'Flynn, our Chief Financial Officer and other senior members of our management team. With that, I will now turn the call over to Andres.
Andres?
Andres Gluski
Thanks, Ahmed and good morning, everyone. Today I would like to start this call with a brief review of 2015.
Then I'll provide an update on the trends we're seeing across our portfolio, our action plans and the net impact of all these factors on our 2016 guidance and long term expectations. As you are all aware, we faced significant macroeconomic headwinds in 2015, including an average devaluation of nearly 30% on our non-U.S.
dollar denominated businesses. We also faced the decline of more than 5% in demand at our distribution businesses in Brazil which is now in a deep recession.
Both of these challenges are persisting in 2016 and we're taking actions to mitigate their impact on our financial results. Nonetheless, we continued to execute well on our long term strategy to create sustainable shareholder value, simplifying our geographic footprint, improving our balance sheet and debt profile, fine-tuning our financial exposure by bringing in partners at the business and project level and profitably expanding our local platform.
As a result of our consistent actions, in 2015, we were able to generate free cash flow of $1.24 billion, up 39% compared to 2014 and $66 million above the mid-point of our guidance range. This was reflected in the $531 million of parent free cash flow we generated which is $8 million higher than 2014.
And we increased our quarterly dividend for the third consecutive year to $0.11 per share, up 10% versus the previous year. Unfortunately, we were unable to overcome all of the $0.11 impact from macroeconomic headwinds we faced and our resulting adjusted earnings per share was $1.22, down from $1.30 in 2014.
This was within our revised guidance range, but $0.03 below the low end of the guidance we gave at the beginning of the year. Regarding capital allocation, we continued to return most of our discretionary cash to shareholders.
Last year, we directed 62% of our discretionary cash towards share repurchases and dividends, specifically $481 million to share buybacks and $276 million to dividends. We also used $345 million or 28% of our discretionary cash to strengthen our balance sheet by pre-paying and refinancing corporate debt.
Our proactive steps over the past several years have put us in a strong liquidity position. Over the next three years, we only have $180 million of parent debt maturities and we've already made 85% of our capital contributions towards our 5.6 gigawatts of projects currently under construction.
To secure our earnings and cash flow growth over the next couple of years, in 2015 we brought on-line 1.5 gigawatts of new projects and continue to make good progress on the remaining 5.6 gigawatts of construction projects. About 90% of these projects are U.S.
dollar-denominated and either regulated or have long term PPAs. Finally, we advanced a few profitable platform expansion projects in California, Panama and the Philippines.
Now turning to slide 4 and our forecast for 2016. Over the last two years, currencies have devalued by as much as 40% to 55% and key commodities such as oil and gas have declined by 45% to 60%.
The 2016 guidance we provided on our last call incorporated the impact from the macroeconomic factors I previously mentioned as of October 15. Unfortunately, these negative trends have continued and based on our sensitivities to commodities and foreign currencies, we've seen additional impact of $100 million on proportional free cash flow and $0.10 on adjusted earnings per share this year.
Tom will provide additional color on the main drivers and their effects in a few minutes. Taking all of this into account, we expect to achieve at least 10% average annual growth in our free cash flow and 12% to 16% average annual growth in adjusted earnings per share through 2018, although all off a lower 2016 base.
Our expectations for this growth is based on three factors, continued performance improvement, projects currently under construction and capital allocation decisions. First, turning to slide 5, let us talk about continued performance improvement.
As you may recall, since 2011, we have successfully implemented a cost cutting program which resulted in a 25% decrease in global overhead, equivalent to a run rate of $200 million of savings per year. Last quarter, we launched a new efficiency and revenue enhancement program to deliver an additional $150 million in savings per year by 2018.
This new initiative includes further overhead cost reductions, procurement savings and operational efficiencies and improvements. We have already launched the programs that will allow us to realize $50 million in savings in 2016 and we're confident that we will realize $150 million in annual run rate by 2018.
Turning to slide 6, second, although we have directed the majority of our discretionary cash to share buybacks, debt repayments and dividends over the past four years, we have also been prudently investing in platform expansion projects together with financial partners. These growth projects are key to positioning AES for sustainable growth over the medium term, as well as maintaining our competitive edge.
We're only investing in projects where we have an existing business, where we see attractive risk-adjusted returns and where we can attract financial partners. Partnerships both reduce risk and enhance returns, as they provide an additional market read on our projects and often pay AES a promote or management fee.
In fact, since 2011, we have raised more than $2.5 billion by incorporating financial partners on our construction projects and operating businesses. And as I said earlier and as you can see on slide 7, in 2015 alone we brought on-line six projects for a total of nearly 1.5 gigawatts and they were completed on time and on budget.
Turning to slide 8. We currently have an additional 5.6 gigawatts under construction, the majority of which are expected to come on-line through 2018 with an average return on equity of approximately 15%.
The total cost of these projects is $7 billion and AES has already contributed 85% of its $1.2 billion in required equity contributions. A major milestone will be the completion of 1.6 gigawatts of environmental upgrades at our existing thermal generation plants at Indianapolis Power and Light.
About 80% of our current construction pipeline is in the U.S. and Chile, where we're expanding our stable and U.S.
dollar-denominated asset base at IPL and AES Gener. Now on to slide 9.
Over the past several years, we have experienced many of the disadvantages of having an international portfolio. However, one of the advantages is that having pruned our presence from 28 to 17 countries, most of the remaining emerging markets we're in continue to experience robust growth in energy demand, supporting the need for our product.
In Panama, Vietnam, India demand growth over the next three years is expected to be in the 6% to 10% range, while in Argentina, Chile, Colombia, Mexico and the Philippines growth is in the 3% to 5% range. One notable exception is Brazil, where demand for electricity dropped 5% in 2015 and we're not forecasting a recovery in levels of demand until 2018.
Now let me touch on a few advanced development projects that will drive our growth beyond 2018. Turning to slide 10, in the Philippines whereas I just mentioned demand growth is expected to remain at around 5%, we plan to break ground in the first half of 2016 on a 300 megawatt expansion of our 630 megawatt Masinloc facility.
The $750 million project will be funded with a combination of partner equity, local debt capacity and free cash flow from the business in the Philippines. Now turning to slide 11.
In Panama, along with our local partner, Grupo Motta, we won a competitive bid for a 350 megawatt gas-fired combined cycle generation plant with a 10-year U.S. dollar PPA.
Using this bid as an anchor, we plan to build 180,000 cubic meter LNG regasification and storage facility, very similar to the one we built and have successfully operated for 13 years in the Dominican Republic. The facility will be strategically located near the entrance of the Panama Canal, allowing it to serve as a ship fuel bunkering hub, as well as meeting unmet local and regional demand for natural gas.
With the completion of the sister facility to our existing terminal in the Dominican Republic, we will be the largest LNG offtaker in the Caribbean and Central America. We expect to break ground this year and complete the project in 2018.
As you can see on slide 12, we've also achieved important milestones on the repowering of our Southland facility, where we were awarded a 20 year PPA by Southern California Edison for nearly 1.4 gigawatts of combined cycle natural gas generation and energy storage. We're making good progress on permitting and licensing and expect to break ground in 2017, with commissioning beginning in 2020.
Finally turning to slide 13, we continue to maintain our leadership of lithium ion-based battery energy storage. We currently have 106 megawatts in operation in four countries.
We have another 60 megawatts under construction and a further 228 megawatts in advanced stage development in the U.S., Latin America and Asia, including 100 megawatts under contract in California. In addition, to the nearly 400 megawatts that we have built or may build on our own business platform, we have reached important milestones towards third-party sales of our proprietary award-winning Advancion Energy Storage product.
We recently signed an alliance agreement with the Mitsubishi Corporation to sell Advancion in Asia and Australia and a similar agreement with Eaton for select countries in Europe, the Middle East and Africa. As part of our drive to maintain the cost competitiveness of our product, we also signed an agreement with LG to supply batteries for our pipeline of energy storage projects.
In our current financial guidance, we do not include any material income from third-party sales of our Advancion project. We believe this is prudent, since our alliance-based business model is in its initial phases.
Nonetheless, we believe that the global market for energy storage solutions is expanding rapidly and will be quite large within five years, as utilities respond to greater renewable penetration. AES's businesses in attractive markets around the world and our long term relationships with local regulators and customers, provide us with an unique advantage in opening the door to energy storage.
We will keep you informed as our alliances progress. Turning to slide 14, the third driver of our growth in per share cash flow and earnings, is our capital allocation strategy.
Four years ago, we identified specific actions to improve total shareholder return, reduce risk and simplify our portfolio. Since then we have used 81% of our discretionary cash towards share repurchases, dividends and debt prepayments.
Since 2011, we have reduced our share count by 15% and our parent debt by 23%. We have completed timely exits from 11 countries and netted $3 billion in asset sale proceeds, including more than $500 million in 2015.
As you can see on slide 15, since 2012 we returned $2 billion to shareholders through share repurchases and dividends, including $757 million or 12% of our current market cap in 2015. While I have discussed our growth opportunities in some detail, we remain committed to returning cash to shareholders and reducing corporate leverage.
With that, I will now turn the call over to Tom, to provide more color on our 2015 results and 2016 guidance.
Tom O'Flynn
Thanks Andres and good morning everyone. Today I'll review our full-year results including proportional free cash flow, adjusted EPS, proportional free cash flow and adjusted pre-tax contribution or PTC by strategic business unit or SBU.
Then I'll cover our 2015 capital allocation, our 2016 guidance and longer term expectations, as well as our 2016 capital allocation. Turning to slide 17, full-year adjusted EPS of $1.22 was $0.08 lower than 2014.
At a high level, we were impacted by the $0.11 impact from the roughly 30% average devaluation in foreign currencies primarily the Brazilian real and Colombian peso, lower operating results in Brazil due to lower demand and a general economic slowdown, as well as lower commodity prices particularly in the Dominican Republic. These negative drivers were partially offset by a reduction in share count of 6% of 40 million shares, lower parent interest expense and a slightly lower tax rate, as well as improved hydrology in Panama and the benefit of new businesses including Mong Duong in Vietnam.
Turning to slide 18, overall, we generated $1.2 billion of proportional free cash flow, an increase of $350 million from last year, even though operating margin was down. As expected, in the Dominican Republic or DR, we settled our outstanding receivables.
And in Chile we recovered delayed VAT payments for the construction of Cochrane and Alto Maipo. We previously expected to be in the low end of our range, if the PPA amendment and collection of receivables at Maritza in Bulgaria did not close.
Although it's been delayed until 2016, we came in above the mid-point of our range as a result of improved collections and working capital improvements across our portfolio, some of which came late in 2015 rather than our prior expectation to collect in 2016. We also earned $1.15 billion in adjusted PTC during the year, a decrease of $171 million.
Now I'll cover our SBUs in more detail over the next six slides, beginning on slide 19. In the U.S.
our results reflect lower generation across our wind portfolio, lower contributions from IPL due to wholesale margins and the partial sell-down, as well as from DPL where a greater portion of the energy was sold into the wholesale versus the retail market. Proportional free cash flow also reflects higher collections, lower inventory and a one-time contract termination payment at DPL in 2014.
In Andes, our results reflect higher margins as a result of improved availability in Chile and higher energy prices at Chivor in Colombia, partially offset by the 27% devaluation of the Colombian peso. Proportional free cash flow also benefited from increased VAT refunds.
PTC also reflects the gain on restructuring at Guacolda in Chile. In Brazil, our results reflect lower margins due to lower demand and the 29% devaluation in the Brazilian real.
Proportional free cash flow also reflects higher interest expense, partially offset by the timing of energy purchases, lower tax payments and lower CapEx at Sul. PTC also includes the net unfavorable reversal of liabilities at Eletropaulo and Sul.
Mexico, Central America and the Caribbean, our results reflect lower margins as a result of lower LNG sales demand, ancillary service revenue and availability in the DR, partially offset by improved hydrology in Panama. Proportional free cash flow had a very strong increase from the collection of outstanding receivables in the DR, as well as favorable timing of collections in Puerto Rico and Panama.
In Europe, our results reflect lower margins due to the 16% devaluation of the euro, the 20% devaluation of the Kazakhstan tenge and the sales of our businesses in Nigeria and our wind business in the UK. Proportional free cash flow, however, was up due to higher collections in Bulgaria and Jordan.
Lower PTC also reflects the reversal of a liability in Kazakhstan that was favorable in 2014. Finally in Asia, our results benefited from higher margins as a result of the start of operations at Mong Duong in Vietnam, as well as improved availability at Masinloc in the Philippines.
Proportional free cash flow was negatively impacted by higher tax payments and the timing of collections and fuel payments at Masinloc. Now to slide 25 and our parent capital allocation for 2015.
Sources on the left hand side reflect the total available discretionary cash, roughly $1.6 billion which is about $140 million higher than our expectation. This is largely a result of the approximate 4% sell-down of Gener in the fourth quarter.
You may remember from our last call, that we expected additional asset sale proceeds of approximately $150 million in our 2016 capital allocation plan. We were able to close this in 2015 and now own approximately 67% of Gener, down from 71%.
This brought our total asset sale proceeds for 2015 to $537 million. Parent free cash flow came in just above the mid-point of our range of $531 million.
Turning to uses on the right-hand side, we allocated 91% of our discretionary cash toward debt pay down and return to shareholders. Specifically, we used $345 million to refinance and prepay over $800 million of high coupon debt.
This included reducing our overall debt by $240 million and the issuance of $575 million of 5.5% 10 year notes which further extended our maturities and lowered interest expense. In addition to the dividend, we've invested $481 million in our shares.
This brings total cash returned to shareholders through buybacks and dividends to $757 million for 2015. Since our last call when we announced our $400 million authorization, we bought back $136 million including $79 million in 2016.
Turning to slide 26 and our 2016 guidance and 2017 and 2018 expectations. As Andres mentioned, our prior guidance was based on currency and commodity forward curves as of October 15.
Bringing those curves forward to January 31, resulted an incremental impact of $0.10 on EPS or roughly $100 million. Our hedging activities have mitigated this impact by $0.03.
Additionally since then, economic conditions in Brazil have also deteriorated by about $0.02. We've incorporated these impacts into our revised guidance.
Our 2016 proportional free cash flow guidance is now $125 million lower, with a revised mid-point of $1.175 billion. This reflects the $100 million in macro impacts I just discussed, as well as the fact that our 2015 proportional free cash flow benefited from the accelerated collections in the fourth quarter.
Regarding parent free cash flow, we now expect 2016 to be $50 million lower, a mid-point of $575 million. Although this is below our previous expectation, it still represents roughly 10% growth relative to 2015.
In 2017 and 2018, we're still projecting at least 10% annual growth in cash flow, but off a lower 2016 base. Our 2016 adjusted EPS guidance is now $0.95 to $1.05 or $0.10 below our prior guidance with the mid-point of $1.
In 2017 and 2018, we're maintaining our 12% to 16% growth rate, but off a lower 2016 base. However, we do expect to be in the higher end of that range.
Before turning to capital allocation, I want to provide updates on a couple of our businesses, beginning on slide 27. Regarding Maritza in Bulgaria, recent energy sector reforms have now been enacted, resulting in improvement in the financial position of our offtaker NEK.
We saw evidence of this in 2015, as collections were 24% higher than 2014. We've also seen progress recently in the financing process of NEK's parent to raise the funds necessary to settle our receivables.
That said, our guidance includes only a modest portion of the outstanding receivables we expect to collect. Also this week, DPL filed its electric security plan which included a request for a reliability rider.
Our plan tracks the criteria set out by the Public Utility Commission of Ohio which are designed to improve rate stability for customers, ensure continued reliability and promote fuel diversity in Ohio, while also ensuring the continued economic viability of DPL's plants based on a targeted 10.7% return on equity. We expect resolution of this filing later this year, with the outcome effective at the beginning of 2017.
We remain on track to have our generation and wires businesses separated by that time. Turning now to 2016 parent capital allocation on slide 29, sources on the left-hand side reflect $1.1 billion of total available discretionary cash.
This is roughly $50 million less than our prior expectation, reflecting lower parent free cash flow. Our discretionary cash could increase through additional funds from asset sales.
Turning to uses on the right-hand side of the slide, with 10% growth in our dividend and share repurchases year-to-date, we're returning at least one-third of this cash to shareholders. Regarding debt reduction, improving our credit profile continues to be a priority.
From a fixed income perspective, we benefit from lowering financing costs and ensuring access to capital. Equally important from an equity perspective, we think that continuing to strengthen our credit will help us get better recognition and valuation for our growing cash flows and dividend.
Accordingly, we're targeting $200 million of debt reduction this year, over half of which we've already done. As an aside, we also continue to have good access to financial markets across our businesses which is still open for attractive projects at favorable terms, as we've seen recently with our advanced development projects and refinancings.
As an example, just a couple of weeks ago we closed a 15 year nonrecourse financing for our Masinloc expansion project in the Philippines, an all-in cost of less of 5%. We have earmarked $330 million for investments on our projects under construction, as well as our expansion projects at Southland in California and in Panama.
We will also be injecting $75 million into Sul in Brazil in support of debt restructuring which will strengthen Sul's capital structure by paying down a portion of the $330 million in debt currently outstanding. The equity injection will also facilitate agreements to extend debt maturities to 2020 and 2021.
We believe those meaningful value in the business above our equity contribution. And following debt this restructuring which we expect to close shortly, we will be assessing all strategic alternatives for Sul.
After considering these investments in our subs, our current dividend and debt prepayment, we're left with roughly $170 million of discretionary cash to be allocated. As in years past, much of this cash is weighted towards the latter part of the year.
We'll continue to invest this cash consistent with our capital allocation framework. With that, I'll now pass it back to Andres.
Andres Gluski
Thanks, Tom. As we have discussed, the macro environment has been and continues to be challenging.
However, our strategy will allow us to weather the unfavorable macroeconomic environment. And just as importantly, it will allow us to continue to reposition our portfolio in spite of near term headwinds.
Furthermore, we will be able to capture the financial upside, when these trends reverse. In the meantime, our portfolio generates strong and growing free cash flow.
And consistent with our track record, we will continue to cut costs, streamline our business and allocate our discretionary cash to maximize value for our shareholders. With that, I would now like to open the call for questions.
Operator?
Operator
[Operator Instructions]. And our first question will come from Julien Dumoulin-Smith of UBS.
Please go ahead.
Julien Dumoulin-Smith
So a quick question here, in terms of target leverage. You've talked a lot about debt repayment this morning and just broader debt paydown strategies.
What's your ultimate target ratios as you guys sit here today? Has it evolved much?
Andres Gluski
Well, I would say the first -- we paid down about $1.5 billion of debt over the past four years, so we've been very consistent in this. And so, every time we sell-down something, we also pay down some debt.
Now let's say our target is to have sort of -- I would say, thinking longer term like 2019, 2020 to have sort of investment grade-like statistics and be like a strong BB by 2018.
Julien Dumoulin-Smith
And how much debt -- further debt pay down you need to do? I mean, are on track with your current trajectory of debt pay down?
Or what's the total quantum per year you would need to get there, to be clear?
Tom O'Flynn
Yes, Julien, this is Tom. I'd just add -- to be consistent what we said in the past, I think we said, maybe $100 million to $200 million a year.
This year, we're on the high end of that range, $200 million. I think if we're hitting our numbers, then $100 million a year would be appropriate.
But we believe would generally stick, at least for the next couple of years, 2017 to 2018, with a range of $100 million to $200 million.
Julien Dumoulin-Smith
Okay. But you would hit IG, if at that pace?
Tom O'Flynn
We would hit IG stats. The ratings are obviously a broader issue.
But if you look over a three, five-year period, we would hit IG stats over that horizon
Julien Dumoulin-Smith
And then just following -- a couple little items, just in terms of setting expectations. Do you expect asset sales -- is there any reason to think about that for this year?
And then, also in terms of the new assets that you announced, the Masinloc 2, the Panama combined cycle, what are the specific EPS contributions from each of those plants once they reach in-service, at least in your initial expectation?
Andres Gluski
Okay. Regarding asset sales, what we've said is that we think on average, we'd been selling around $200 million-plus per year.
Last year, we did a bit more, we did $500 million. I think the way to think about it -- we will exit certain markets when we think the time is right, but we'll also sell-down positions to get partnership money to reinvest it in these new projects.
Now regarding the EPS contributions, what we've said is that on average, our projects will have a return on equity -- so the first three years of full operation of around 15%. It's going to vary a lot project by project, but I think what's important is we have -- are repositioning this portfolio.
90% of the new projects of that sort of 7 gigawatts that we've had, are U.S. dollar denominated, 80% of the new projects are in the U.S.
and Chile. So we're repositioning this portfolio to be more contracted, more dollar-based and in countries with strong markets.
Julien Dumoulin-Smith
And quick last question, the EBITDA you provide in -- for DPL, is that reflect any above market assumptions for the ESP in forward years?
Andres Gluski
What we provided in there for the reliability rider, as we said in the past, it's incorporated into our numbers and it is a modest increase, versus what we had as a non-bypassable [ph] in the past.
Operator
Our next question will come from Ali Agha of SunTrust. Please go ahead.
Ali Agha
My first question, what is your confidence level in the revised earnings outlook for 2016? Given the ongoing global turmoil, how much cushion have you given yourselves, if things get even worse than at right now?
Andres Gluski
Yes. Well, we always give guidance based on sensitivities and based on commodities and based on FX at a period in time.
So we feel very confident that we can deliver this, based on those numbers. If you have a further deterioration, we have the sensitivities.
Now we have also engaged in some hedging which Tom can talk about, to lessen that. I think that if you look over the years, we've always outperformed our guidance based on the numbers at the beginning of the year.
What has happened is that the commodities and FX have moved in a negative direction.
Ali Agha
Okay. I guess, a second question on Brazil.
There has been some stories suggesting potential exit from maybe Eletropaulo Sul. You alluded to Sul in your comments.
Can you give us a sense what you are looking at there in Brazil? And maybe bigger picture, if you are not looking for an exit, what is the strategic rationale for staying there, given the disproportionately negative impact that Brazil has to your overall stock and valuation, given such a small contribution to earnings, given the outlook that is not looking any positive, why are you in Brazil?
Andres Gluski
Let's step back a little bit. Since about 2006, when I got involved in Brazil to date, we've sold down probably about 70% of Eletropaulo.
Until the last two years, Brazil actually was a pretty good contributor to our earnings and cash flow. Now I agree that the prospectus for Brazil -- for 2015, was a terrible year.
I think 2016 is going to be bad. We don't expect a recovery in energy demand until about 2018.
This is true. But I think you have to remember, that we only own16% of Eletropaulo.
At today's market valuation, that's about $60 million of equity positions, it's relatively small. It's a publicly-listed company, so we're not going to comment on it.
But I would say that we've been consistent in our strategy of let's say, of focusing our position in Brazil. And for example, when there was sort of an -- asset prices were high.
There was a lot of pressure on us from -- to lever up Tiete and buy assets. We never did, because we never thought that those were good investments.
So looking at the good, big picture for Brazil, we have 2,006 megawatts of hydro. They are very well-contracted over the next couple of years, at much higher than today's spot prices.
I thinking in the future, it's going to be hard to get that kind of hydro assets at a reasonable price. So Brazil, again is in tough times.
It's going to take some time to work its way out of it. But on the other hand, I think we have to take a longer term perspective of the AES' presence in Brazil, not referring to any specific asset.
Ali Agha
But the comment on regarding Sul, Andres does that apply to distribution exposure in general in Brazil? Which in the past you've said has been a challenging market for you?
Andres Gluski
Again I said, we've -- I'm not going to comment on Eletropaulo, it's a publicly traded company. But regarding Sul, referring to Tom's speech, we're going to look at all strategic alternatives.
With the refinancing, with this capital injection and refinancing, this will give us a year's grace. And we will look at alternatives of how to make Sul more efficient and what makes the most sense for our shareholders.
Ali Agha
Okay. Last question, sort of more bigger picture, at what point would you be willing to step back and look dispassionately at the portfolio, Andres and perhaps followed the logic that some of us espouse, that the sum of the parts may be greater than the whole and does it make sense to maybe look at unlocking equity value, by perhaps breaking up some of the pieces of this Company?
Would with ever occur in your mind or what's your thinking --?
Andres Gluski
Well, I think it certainly has occurred. I think we been very dispassionate.
I mean, we've sold one-third of this portfolio. And I think that, if you go back and look at the prices we sold at and the timing, I think overall, we'd have to get a pretty good grade.
So we always look very dispassionately -- we work for shareholders. What we're doing I think in many cases, is capturing a lot of that value through our partnerships and using that money to reposition this portfolio.
So we will look at all alternatives. We've always said that.
I think maybe a year ago, yieldcos were in fashion. A lot of people were saying, why don't you do a yieldco?
We really thought that we -- from a fundamental point of view and that's how we always look at things, dispassionately and fundamentally, that partnerships made more sense. They were cheaper.
They didn't create obligations for new investments and we think that strategy has played out. So certainly, we have an open mind and from time to time, we look at this.
But it has to be something that, really fundamentally unlocks the value and is not something perhaps that's -- I don't know what the word would be, in style or with other people -- we're always open to look at all alternatives. I think we been very dispassionate, in terms of our sale decisions.
And we always look at things, again from a fundamental point of view, whether that's investing new money. If we put new money in, for example into Sul, it's because we think that there is significant equity value there.
So we do not have some emotional attachments to specific businesses.
Operator
Our next question will come from Chris Turnure of JPMorgan. Please go ahead.
Chris Turnure
Going back to the balance sheet, I wanted to get an update -- or first, I guess, just clarify comments that you made to one of the earlier questions on your deleveraging intent, kind of slowly over time through the end of the decade here. Has anything really changed there over the past 6 or 12 months or so, as a result of Forex and commodity prices and some of the pressures that you've been under?
Because it sounds to me like you're trying to paint a relatively consistent message here? And then conversely also, on debt capacity at some of your subsidiaries, could you talk about and just give us an update on Tiete and where that $500 million of capacity stands today?
And then, maybe also any incremental availability at Gener or in Europe?
Tom O'Flynn
No, I think, our overall credit improvement comments are consistent with what we've said. And when we say, our credit ratio and credit statistic improvement, there's two ways to get there, the numerator and the denominator.
We think more of the improvement will be in the numerator, i.e. parent free cash flow goes up which is the distributions from subs is obviously a numerator that we look at the most, for health of our parent credit.
So we do expect growth, as we've talked about the 10% or more growth in parent free cash flow is driven by subsidiary distributions. So it's more the reducing debt and interest cost is a smaller part of the story, but it is part of the story.
So I think just going back to what I said to Julien, I think we'll do $200 million this year. I think as we see it now, probably do $100 million each of the next two years.
And that's consistent I think, with what we said over the last 6 to 12 months which is about $100 million to $200 million a year. It's also pretty consistent with what we did last year.
If you look at the debt we paid down, some of it was attributable to asset sale proceeds. But about $150 million, $175 million was attributable to -- in our minds, just paying down debt and trying to continue to advance our credit story.
And once again, we think that we can get investment grade type stats over, let's call it 4 to five-year period, on a gradual step. I think we're -- the facts and the pathway is pretty consistent.
I think it's more of a focus let's say, certainly senior management, also at the Board level, because we certainly are paying out a pretty healthy dividend. We've got 10% growth and we really want to get shareholders to be comfortable in the stability and growth trajectory.
And we think improving our credit will be part of that picture. Just the other thing -- quickly to touch on, yes, Tiete does still have about $500 million of debt capacity.
Like all of our Brazilian utilities, they've got a debt to EBITDA coverage and they have very modest debt. So about $500 million would be available under their overall debt docs.
I might be a little cautious about that number today, just because Brazil is a challenging place. But they certainly do have debt capacity and as we look to grow at Tiete, it would be with that debt capacity.
We do have other -- I mean, in general around our subs, we do look to optimize our businesses. Gener is BBB- right now, I think it's, given the construction program, we don't see a lot of incremental capacity from Gener, but throughout certainly past Alto Maipo, yes, there is.
But we do look at debt capacity around the business. One place is in Masinloc, where we're increasing the plant -- the facility side by 50%, with the 300 megawatt increment.
That is being done through a financing that joins the credit of existing Masinloc with new Masinloc, that very much minimizes the amount of equity we have to put in. The same story we did in the DR.
We did at DR a $260 million project, basically put no equity in, because the new project was stapled to the old one. So we leveraged available debt capacity in that fashion.
Andres Gluski
Chris, what I would add, is just to remind everybody, I think our debt is in very good shape. I think Tom and his team have done a great job.
At the parent side, we only have $180 million of maturities at the parent and that's in 2018. So we have no maturities at the parent this year or next.
And at the subs, 95% of the debt and the functional currency of that business and at the parent 90% is fixed. So this is consistent with what we've been doing.
I mean, we have been repositioning this debt to put ourselves in a strong position. When you, for example, you had a tightening of credit over the last couple of years in global market, it's not affecting us.
So this is consistent with that philosophy. It is just that, as these new projects come on-line, where we can give more guidance, in terms of the strengthening of our credit into the next couple of years.
Chris Turnure
And then, my follow-up is on the overall outlook for 2016 to 2018. Obviously, Forex and commodities have hit you guys pretty hard.
And you also mentioned a reduced outlook for demand growth in Brazil on the utility side, as weighing on your outlook versus the last update. Are there any other drivers there, that we should think about better meaningful in the aggregate?
Andres Gluski
No. I mean, those are the drivers.
As we said, it's commodity prices, it's oil, it's gas, it's FX and it's growth in Brazil. And quite frankly other than Brazil, all of our other markets are growing.
Argentina could be flat this year, but we expect a good growth in Argentina 2017 and 2018.
Operator
Our next question will come from Angie Storozynski of Macquarie. Please go ahead.
Angie Storozynski
I wanted to go back to Brazil. I recall during the EEI, you guys mentioned that you seem to have a pretty significant hydro exposure in the country, both on the TSS side and the utility side.
Tiete does have some debt capacity. We seem to be heading to a potential asset sale by other market participants.
Do you think it would make sense for you to bulk up on your generation assets on the hydro assets in Brazil or in South America in general? Or would you rather be more conservative and just continue to return cash to investors and not to double-down, especially in Brazil?
Andres Gluski
I would say that, thinking about the other people selling some assets in Brazil, we really aren't looking at something -- like a large acquisition in Brazil. I can say that, no, we would take a more conservative position on that.
And you are also right, that one of the risks, we want to measure and control really of course, is hydrology in Brazil. We have changed our contracting structure.
There's a lot of water this year in South and south east of Brazil, so that spectre of rationing is gone, also with the drop in demand. We've also fortunately I think, had done a good job, the team has done a good job in terms of contracting at Tiete over the next couple of years.
So we have prices around 150 reais, 149 reais per megawatt hour and the spot market, because of all the rain and the drop in demand is as low as 30 to 40 reais. So we're in a good position there.
But answering your questions, strategically we do not see doing a large -- sort of doubling up as you put it, on hydro risk in Brazil.
Angie Storozynski
Okay. And now a different topic, Ohio.
So you've just filed your ESP. Similar to all the other utilities you're asking for a PPA for your Ohio coal plants.
Now we're likely to have a FERC review of those PPAs with the other players. Now what is your expectation of -- about the future of these assets, if FERC were to somehow challenge the PPAs of the remaining two companies?
Would you expect, for instance, Ohio to potentially fully re-regulate its power market?
Tom O'Flynn
Yes, Angie, it's Tom. I'd say what we filed in Ohio was a reliability rider, so we're thinking about it from a different perspective than a couple of the other in-state folks.
So we would be less focused on their situations at this point. We just filed it.
It's generally, obviously, something we'll would expect to get resolved this year. We think it hits the points that I mentioned in my script.
It's consistent with the PCO criteria and objectives. It would provide stability for a long period of time and we also think it would provide benefits to rate payers over the 10 year period.
The numbers are slightly -- what we filed for is slightly better, than our -- than what we have now in our ESP. I'd say, we'd incorporate something into our guidance, but I'd rather stay away from specifics of what has been incorporated in our guidance.
But we do think the plants continue to have an economic value and that is certainly for the 10 year period. And it's based just on the four -- on our coal plants which is about $1 billion of rate base.
Operator
Our next question will come from Stephen Byrd of Morgan Stanley. Please go ahead.
Stephen Byrd
I wanted to discuss trends, in terms of where AES parent is receiving distributions from its subsidiaries in 2015 and beyond? Could you talk to the trends in terms of changes over time, relative to what we saw in 2015, in terms of where the cash actually came from?
Andres Gluski
I'll go ahead and pass that over to Tom. But basically our big contributors are Andes and U.S., have been our big contributors.
Asia growing somewhat, because as Mong Duong comes on. But Tom, perhaps you can give a more specific answer?
Tom O'Flynn
Yes, Steve, how are you? We got some detail in the back of our deck in the appendix.
I think 46 has some detail and there's also some more -- that's by SBU. In general, I think our distributions follow our largest areas.
It's the U.S., as well as Andes. MCAC was a big contributor last year, especially with the collection catch-up in the Dominican Republic that we spoke about.
And I think that over time, distributions generally follow proportional free cash flow and earnings. There may be some timing off by year.
Often our companies will pay out dividends based on prior year's earnings, so sometimes there's a lag of a bit. But I think generally, our distributions are quite close to proportional free cash flow, in PTC.
Andres Gluski
Steve, the one thing we maybe -- if we had the full collection from Bulgaria, this would be an upside, because we only include a modest amount of money from Bulgaria and so, we've taken a conservative approach regarding. And as Tom mentioned, recent developments have been very encouraging in Bulgaria.
Stephen Byrd
So if BEH is able affect the financing and you are paid as you should be, then there could be further upside in 2016 in terms of distributions?
Andres Gluski
That's correct. That's correct, in terms of parent free cash flow, yes
Stephen Byrd
Okay. And I presume you don't want to lay out exactly the magnitude of that, at this point, in terms of the incremental?
Andres Gluski
I would say, in terms of our guidance, we'd be at the upper end of the range, for the proportional and the parent free cash flow that we'd get in Bulgaria. I would mention that, in terms of encouraging news, the Minister of Energy yesterday came out and said, that they had -- there are two phases to it.
The first is, that the BEH, Bulgarian Energy Holdings would receive a bridge loan from banks for later on take-out. As she mentioned yesterday, that they had received significant offers from one of the bank consortiums -- I think expect two or three to come in.
And that's very favorable, because we'd get paid with the bridge loan and we wouldn't have to wait for the bond operation. So that really, again that's a favorable development.
Let's wait and see. If that does occur, that would -- and given that everything else happens as we expect, we would be at the upper end of the range.
Stephen Byrd
Just wanted to follow up, shift over to Latin America and just get your sense at a high level of buyer appetite, ability to finance acquisitions, et cetera, for I guess, Latin America overall and Brazil in particular, is it your sense that there is a viable buyer universe out there or is it a little challenging, given what we're seeing in terms of deterioration in places like Brazil? What's your sense?
Andres Gluski
I would really segment Brazil, from the rest of Latin America right now. I would say that Brazil is in a recession.
But if you look at the rest of Latin America, its growth rates are actually higher than the U.S. So if you look at Columbia, Chile, Mexico -- Panama is growing at I think about 7%.
Dominican Republic is growing, so I would segment Brazil from the rest. So for the rest, I think in most places, yes, there definitely is a market.
Even in a place like Argentina, we're seeing greater investor interest, because a lot of the moves that the government has taken, are seen very favorably. I personally was down in Argentina.
I can say, it's one of the most impressive executive teams I've seen anywhere, anytime. So they've already started to liberalize tariffs and rationalize prices.
But if you get to Brazil itself, I think that these assets are definitely sellable. I think it depends on the asset.
There is still appetite. There is still local groups who have the capacity to buy this.
There is still a lot of plays of consolidation in the sector and you have foreign investors. You have Italians, Spanish investors, who are on the look-out -- and French who are on the look-out for assets.
So I would say that even though Brazil is the market that's not growing and at the same time I think for quality assets, there are definitely buyers. The price may not be what it was two years ago for sure, but again, that's reflected in market valuations.
Operator
Our next question will come from Gregg Orrill from Barclays. Please go ahead.
Gregg Orrill
Just to follow-up on the Bulgaria discussion, what's in your 2016 earnings guidance from Bulgaria?
Tom O'Flynn
Yes, 2016 has an expectation that we settle here in the near term which would be our 14% reduction in tariff. So just from a PTC perspective and the PTC for the year is about $90 million to $100 million which is a little bit down from last year.
I think last year, PTC was around[$115 million, $120 million. So it's a little bit down this year.
Just from a pure PTC perspective, actually delay in the resolution payment and closing of our PPA adjustment helps PTC. Obviously, a top priority is to get that done -- which gets us on the right path forward and obviously helps proportional free cash flow and parent free cash flow, but bottom line this year it's about[$90 million, $95 million PTC
Gregg Orrill
So is the read that you feel your cash flow assumption is conservative?
Tom O'Flynn
I'd say in that respect, yes, our proportional free cash flow assumption would be conservative. It's a fairly modest amount that we have included, if you look at our mid-point, would be a fairly modest Bulgaria amount.
So yes, if that gets done and Andres gave some color that the signs are certainly turning towards the positive here. If that gets done, then we could well be towards the higher end of our proportional free cash flow range.
Operator
Ladies and gentlemen, this will conclude our question and answer session. I would like to turn the conference back over to Ahmed Pasha for any closing remarks.
Ahmed Pasha
Thank you, everybody for joining us on today's call. As always, the IR team will be available to answer any questions you have.
Thank you and have a nice day.
Operator
The conference has now concluded. Thank you for attending today's presentation.
You may now disconnect.