NEW YORK--(BUSINESS WIRE)--Fitch rates Abengoa Transmision Sur's (ATS) USD432 million senior notes maturing in 2043 'BBB-'. The Rating Outlook is Stable.
KEY RATING DRIVERS
Fitch's rating is based on the following factors:
--Operational Risk Mitigation: Equipment and technology employed in ATS is widely utilized in transmission lines globally. The operating asset benefits from relatively low operating risk. Abengoa, the operator, has considerable experience in transmission lines globally. The project's exposure to rising long-term operating costs is partially mitigated with a fixed price operating contract. [Operation Risk: Stronger]
--Predictable Revenue Stream: Cash flow is based on tariff payments supported by a strong contractual mechanism that provides full cost recovery for operating and maintenance costs. Tariff payments are indexed to inflation and tied to availability eliminating volumetric and price risk. A consortium of creditworthy power generators shares an implicit joint and several obligation for tariff payment. Contract termination risk is low. [Revenue Risk: Midrange]
--Infrastructure/Renewal: The transmission project will provide power connectivity from Lima to south-western Peru, and is instrumental for the growing demand in the region. The limited flexibility in the hand back period is partially offset by scheduled maintenance covered under an O&M contract. The project is not likely to pose the same hand back risk as other more complex projects because of the straight forward nature of the asset and the long life expectation. [Infrastructure/Renew: Midrange]
--Adequate Debt Structure: The fully amortizing, fixed rate debt matures one year prior to the concession term. The structure includes six month reserve accounts for debt service and operation and maintenance. A cash-trap mechanism ensures debt is timely serviced if debt service coverage ratios (DSCRs) fall below the equity distribution test of 1.20x. [Debt Structure: Stronger]
--Sufficient Debt Service: Fitch's base case projected DSCR is 1.25x minimum and 1.38x average, while the loan life coverage ratio (LLCR) is 1.44x. Under a scenario of increased costs, Fitch's rating case projected DSCR is 1.16x minimum and 1.28x average, while the LLCR is 1.34x.
RATING SENSITIVITIES
--Lower revenue generation derived by a weaker regulatory framework that destabilizes the current payment contractual mechanism;
--Operating expenses and major maintenance substantially higher than projected could further pressure financial coverage ratios.
SECURITY
The notes are secured by all concession assets of the issuer, including without limitation, the rights to tariff payments under the concession agreement, all trust accounts and all of the Issuer's rights under the sponsor support agreement, and the mortgage on concession and pledge over 100% of ATS' shares.
Transaction Summary
ATS consists of three sequential 500kV transmission lines and three new substations, extending along 883 kilometers [approximately 550 miles]. The transmission line connects the Chilca substation, located nearly 60 kilometers [approximately 37 miles] south of Lima to the Poroma, Ocona, and Montalvo substations in southern Peru, along with two short 220kV transmission lines linking to existing substations.
The project operates under a 30-year Concession Agreement, granted by the Government of Peru through the Ministry of Energy and Mines (MINEM). The Concession Agreement was granted on April 30, 2010, executed on July 22, 2010 (the Concession Date), and commenced on Jan. 17, 2014 (Commercial Operation Date).
The USD432 million senior secured notes have a legal maturity in 2043. The notes follow a semi-annual scheduled amortization with interest payments beginning October 2014 and principal payments beginning October 2016.
Proceeds from the issuance and equity contributions are to be used in the following manner: i) repay senior secured term loan facility; ii) repay related party subordinated debt; iii) fund the debt service reserve account (DSRA); iv) pay transaction fees and expenses; v) fund the operation and maintenance reserve account (OMRA); vi) terminate interest rate swap; vii) pay subordinated secured loan fees.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012);
--'Rating Criteria for Availability-Based Projects' (June 18, 2013).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867
Rating Criteria for Availability-Based Projects
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710784
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=827328
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