CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign the following rating to the proposed issuance of notes by QGOG Atlantic / Alaskan Rigs Ltd (the Issuer), a business company setup in the British Virgin Islands (BVI):
--US$700 million senior secured notes, 'BBB-(EXP)'; Outlook Stable.
Fitch's expected rating addresses the likelihood of timely payment of interest and principal on the scheduled semi-annual amortizations (one principal deferral allowed). This expected rating does not incorporate Fitch's full legal analysis as this process is currently ongoing.
The notes are backed by two intercompany loans granted to Star International Drilling Ltd. (Star International) and Alaskan Star Ltd. (Alaskan Star Ltd.; collectively Guarantors). The Guarantors own the Atlantic Star and Alaskan Star rigs, respectively, both of which have been leased to Petroleo Brasileiro S.A. (Petrobras) pursuant to individual charter agreements. The rigs are moored semi-submersibles with midwater depth capacity and have been operating for Petrobras since the mid-1990s.
The rights to the charter agreements will be assigned as collateral to secure the notes on a cross-collateralized basis. Queiroz Galvao Oleo e Gas S.A. (QGOG) will remain as operator of the rigs. Deutsche Bank Trust Company Americas, as collateral agent acting on behalf of the noteholders, will be assigned a collateral package that includes a pledge of the shares of the guarantors, as well as mortgages on the rigs.
Fitch considered the following factors in its credit analysis: the strategic importance of the Brazilian oil and gas industry, Petrobras' role as off-taker to the charter agreements (Petrobras Issuer Default Rating [IDR] 'BBB'), the operating track record of the rigs and of QGOG as operator, liquidity, overall leverage, and the structural features in place.
Asset quality analysis considered the strategic importance of the local oil and gas industry to the Federal Government of Brazil and Petrobras' investment plans. The industry is considered of extreme importance for the economic growth of the country and should provide a stable credit environment for companies operating in this segment. These consequently mitigate potential decreases to the market value of the Brazilian-operated vessels.
The positive operating track record for both rigs (average uptime of 96.7% over past 15 years) as well as QGOG's longstanding expertise as an operator of midwater drilling rigs are positive aspects of the credit analysis. Since Petrobras will only make payment as long as the vessels are available to operate, uptime operating performance is an important element of the analysis. The rigs were built during the mid-1970s but have been through significant upgrades since. The expectation is that they will continue to operate at their historical uptime levels throughout the life of the transaction. Compared to other drilling assets used by Petrobras, the Alaskan and Atlantic Star rigs have been very highly ranked in 2009 and 2010, in terms of uptime performance.
Debt service coverage ratios (DSCRs) are expected to average 1.25 times the interest and scheduled principal amortization. Reserve accounts are sized to cover one interest and principal amortization and three months of operating expenses on each rig. These provide adequate liquidity mechanisms to protect against event risks that could potentially be followed by extended periods of down-time. In addition, the transaction can defer one principal payment if necessary. The cross-collateralization feature of both vessels provides additional liquidity protection.
Principal and interest payments will occur on a semi-annual basis, in May and November of each year. Nonetheless, a balloon payment in total amount of US$49 million is scheduled to be paid on July 2018, expected maturity of the transaction. Under base case assumptions, liquidity in the form of the reserve accounts, including a retention account that will hold all residual cash from November 2016 on, is sufficient to cover the outstanding amounts. The transaction benefits from a one-year additional tail to dispose of the vessels and pay any outstanding principal and accrued interest amounts should any of the reserves be used and/or amounts retained are not enough to cover such balloon payment.
A key element of the analysis is the amount of leverage raised on the rigs. While the rigs are contracted to Petrobras until November 2016 (Alaskan Star) and July 2018 (Atlantic Star), these contracts may be rescinded under events such as bankruptcy of QGOG and/or poor uptime performance. Fitch received individual reports on the valuation of the rigs prepared by Noble Denton & Associates. A Fitch-adjusted discounted cash flow valuation indicates a loan-to-value (LTV) ratio of approximately 94.5% at issuance and an average LTV of 46.4% throughout the transaction's life. Qualitative aspects of the leverage analysis include the overall credit quality of QGOG, the operating track record of both the rigs and QGOG as operator, QGOG's relationship with Petrobras, and the attractiveness of the assets at contracted day rates. Resulting LTV ratios are consistent with the 'BBB-' expected rating.
Other important structural features considered include charter payments collected through offshore collection accounts controlled and allocated by the collateral agents as well as DSCR triggers and certain debt acceleration events.
A detailed description of the criteria applied in the analysis is provided in Fitch's presale report titled 'QGOG Atlantic / Alaskan Rigs Ltd.' available shortly at www.fitchratings.com.
Additional information is available at www.fitchratings.com.
Sources of information used to assess this rating were Queiroz Galvao Oleo e Gas S.A., Santander Investment Securities Inc., HSBC Securities (USA) Inc., Noble Denton & Associates, ODS-Petrodata, Inc., and Rigzone.com, Inc.
Applicable Criteria and Related Research:
--'Global Structured
Finance Rating Criteria', Aug. 13, 2010;
--'Rating ', Aug. 13, 2010.
Applicable Criteria and Related Research:
Global Structured Finance
Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547326
Rating
Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345
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