We maintain our Neutral recommendation on Pampa Energia (B/B+) and keep the PAMPAR 7.875% 2034 notes as our preferred bond, without a bond-level Overweight. This is a different Neutral from our initiation. The 2031s and 2034s have widened 90 bps and 70 bps since then, against 40 bps for the EM BB corporate index, so valuation weighs less on the call, while the 3Q26 results show leverage rising as Fértil Pampa spending accelerates and its funding remains unresolved. We therefore see the decision to stay at Neutral as a credit call rather than a valuation call. Within the curve, the 2034s have outperformed the 2031s since our initiation, and their pickup has narrowed to 19 bps from 39 bps. It remains wider than its 3M and 1Y averages, though, and the 2034s have cheapened more than the 2031s against their own history, so we think they remain the better entry for investors who want Pampa exposure. We stop short of a bond-level Overweight because Pampa’s bonds have held up better than most Argentine peers through the selloff. Our preference for the 2034s is a choice within Pampa’s curve, not a view that the bonds are cheap against other Argentine corporates.
The credit basis has weakened since our initiation, and for bondholders we think the direction matters more than the level. Net leverage rose to 1.72x from 1.38x in one quarter as the LTM free operating cash flow deficit after interest and leases widened to US$1.02bn. We now expect net leverage to reach about 2.1x by 3Q27, above the top of management’s 1.5–2.0x range. Leverage is still moderate for a B+ composite rating. The concern is that it is rising on spending that has yet to generate cash, and Fértil Pampa adds funding needs before the existing businesses can absorb them. In that respect Pampa resembles YPF more than Vista, with investment and funding needs rising into the election rather than leverage falling. Pampa guarantees Fértil Pampa’s EPC payment obligations and its US$300mn Itaú term loan, which leaves bondholders directly exposed to construction risk, and since the project is wholly owned, any project debt will sit in consolidated leverage whatever recourse it carries. We do not expect multilateral funding at the subsidiary to bring consolidated leverage down, and project lenders could rank ahead of Pampa’s bondholders on the subsidiary’s assets. Liquidity remains a strength, with no international bond maturity before 2031 and post-quarter local issuance as Pampa borrows ahead of the election. We think its composition matters more after the sovereign repricing, since more than a third of quarter-end cash and investments was held in Argentine government securities whose value moves with the same country risk now weighing on Pampa’s bonds.
