NEW YORK & MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings expects to rate Abengoa Cogeneracion Tabasco, S. de R.L. de C.V.'s (ACT) $600 million senior secured notes at 'BBB-'; Stable Outlook. The rating is capped to the off-taker, Petroleos Mexicanos (Pemex), rated 'BBB'; Stable Outlook, by Fitch.
Key Rating Drivers
--Rating Capped by Off-Taker: The rating of ACT is capped to the off-taker, Petroleos Mexicanos (Pemex), rated 'BBB' with a Stable Outlook by Fitch. ACT is of strategic importance to Pemex, Mexico's state-run petroleum company and provides a 20-year, fixed-price power purchase agreement (PPA) for the full term of the debt. Under the PPA, in any early termination scenario and irrespective of who the event is attributable to, the termination payment covers the balance of the outstanding debt.
--Strong Sponsor Experience: General Electric (GE) and Abengoa are joint sponsors, and also participate as critical equipment supplier and contractor, respectively. Both have a significant track record in power plant construction and operation, and experience working in Mexico and with Pemex. Fitch rates Abengoa 'BB' with a Stable Outlook.
--Low Completion Risk Remaining: Contractor Abengoa has achieved 85% completion as of Oct. 31, 2011 and the remaining completion risk is limited by a lump-sum, fixed-price, date certain, turnkey engineer, procure and construct (EPC) contract supported by a USD50 million letter of credit. The project uses proven gas-fired technology.
--Strong Initial Operator: GE will maintain and service the turbines under a 20 year agreement. While there is no major maintenance reserve, operating cost risk is partially mitigated by the fixed-price operating agreement that includes this expense.
--Good Debt Service Coverage and Structure: In the rating case, Fitch projects the average debt service coverage ratio (DSCR) over the life of the project at 1.62 times (x) which is comparable to other similarly rated transactions and consistent with Fitch's criteria for an investment-grade rating. The debt fully amortizes within the term of the PPA, with no refinancing risk.
What Could Trigger a Rating Action
--Downgrade of Pemex, since the assigned credit rating is capped by the off-taker's rating.
--Inability to complete the project within the construction's cost, schedule, and performance goals.
--Failure to maintain the availability requirements in the PPA.
--Actual operating costs that are higher than currently projected.
Security
Collateral will include a first priority security in project ownership, all of the project's existing and future tangible and intangible assets including contracts and agreements, insurance proceeds, and the debt reserve account.
Project Summary
In September 2009, Abengoa and GE signed a 20-year PPA with Pemex to construct, operate, and own a 300-MW natural gas-fired combustion turbine cogeneration facility located inside Pemex's existing 464-acre gas processing complex known as 'Nuevo Pemex', in the state of Tabasco, Mexico. In order to do so, ACT was created as a special-purpose vehicle that is bankruptcy-remote from the sponsors.
The facility will result in the shutdown of Pemex's less efficient equipment. It is designed to deliver energy from a guaranteed net capacity of 277.2 MW at summer design conditions and between 550 and 800 tons per hour of steam. Pemex will supply the facility with demineralized and condensed water, gas fuel, and service water, while the facility will produce process steam together with electricity.
The construction schedule has a 36-month duration and guaranteed substantial completion date is expected in September 2012. Regardless of the actual start-up date, the 20-year commercial operation period will not start until construction is concluded. As of Oct. 31, 2011, all critical equipment was already on site. The total estimated project cost is USD743.5 million, of which USD143.5 million of equity has already been contributed from the sponsors.
The Fitch base case assumed a capacity of 290.895 MW before degradation and a degradation factor of 3.96% in all years, leading to a long-term average net capacity of 277.617 MW, a 0% increase in Heat Rate (HR) 3,750 kJ/kWh, a 3% increase in Operating & Maintenance (O&M) all years, and 94% availability. This scenario resulted in a DSCR average of 1.62 times (x) with a minimum of 1.49x and a Loan Life Coverage Ratio (LLCR) of 1.61x.
Fitch's rating case assumed (for all years) a 5% increase in HR (3,938 kJ/kWh), an 8% increase in O&M, a 2% decrease in availability, and a 2% decrease in capacity (271,754 kWe). This scenario resulted in a DSCR average of 1.42x with a minimum of 1.24x and a LLCR of 1.43x. Although minimum coverage in the rating case is lower than typical for the rating category, it is observed in only one period along the 20-year projection. Also, it is mitigated by generally strong qualitative and structural factors, including solid off-taker, experienced sponsors, and fully contracted revenues.
The Senior Secured Note's main proceeds will be used to repay an outstanding bank loan used to finance the project at earlier stages, pay remaining EPC contract costs, fund interest during remaining construction term, the debt service reserve account, and other uses such as transaction costs.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (Aug. 16, 2011);
--'Rating Criteria for Thermal Power Projects' (Jun. 20, 2011).
Applicable Criteria and Related Research: Abengoa Cogeneracion Tabasco, S. de R.L. de C.V. (Nuevo Pemex Cogeneration Project)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=659523
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648832
Rating Criteria for Thermal Power Projects
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=639073
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