Author: AtlanticIS

Corporates

Moody’s assigns first time Baa3 rating to Peru LNG; stable outlook

AtlanticIS

New York, March 08, 2018 — Moody’s Investors Service (Moody’s) assigned a Baa3 Issuer Rating to Peru LNG S.R.L. (PLNG) and its proposed USD940 million in senior unsecured notes. Proceeds from the notes will be used to refinance existing corporate bonds together with bank debt. The outlook on the ratings is stable.

This is the first time that Moody’s assigns ratings to PLNG.

RATINGS RATIONALE

The Baa3 ratings on PLNG and its USD940 million in proposed senior unsecured notes are supported by its solid credit metrics and financial policies, no volume risk, low supply risk, high facility utilization factor, limited competition risk, minimum foreign exchange risk, strong shareholders support and the high relevance of the company to the Peruvian’s energy industry and trade balance. On the other hand, the ratings also consider the company’s small and single operational asset base as well as its exposure to Liquefied Natural Gas (LNG) price risk, which bring up operating and financial risk.

The proposed notes will have 6 years of grace period and mature in 2030, after the LNG Sale and Purchase Agreement with Shell International Trading Middle East Limited (SITME) expires, in 2028. The mismatch between the maturity of the notes and the expiration of the delivery contract to the off-taker represents a risk that is however mitigated by the payment amortizing feature of the proposed notes. Moody’s estimates that, in 2028, PLNG would owe about USD238 million related to the 2030 notes, which the company would cover with accumulated cash flow from operations.

PLNG has adequate liquidity pro forma for the proposed notes and debt repayment. Moody’s estimates that, after the company issues the notes and repay existing debt, cash on hands will be about USD50 million which favorably compares to USD30 million of minimum cash. Moody’s also estimates that PLNG will generate cash from operations close to USD108 million over the next 18 months. The company’s financial obligations in the period will be about USD42 million (interest expenses) and it will not pay dividends; in turn, capital expenditures will be limited to USD23 million in 2018, mostly for scheduled maintenance purposes.

The stable rating outlook reflects Moody’s expectation that PLNG will sustain its low business risk profile, maintain solid financial policies, and be able to reduce its financial leverage towards management’s target of 3.5-4.0x debt/EBITDA by year end 2019.

PLNG’s Baa3 ratings could be upgraded if it manages to decrease leverage efficiently, as per EBITDA to gross debt, below 3.5 times on a sustainable basis as well as if maintains an interest coverage above 6.5 times, as per EBITDA to interest expense.

PLNG’s Baa3 ratings could be downgraded if its interest coverage, as per EBITDA to interest expense, falls to below 3 times with limited prospects of a quick turnaround. In addition, a deterioration of the company’s liquidity profile and an increase in leverage above to 6.5 times could lead to a rating downgrade.

Founded in 2003 to build, own and operate the first natural gas liquefaction plant in South America, PLNG delivered the first LNG cargo to its sole off-taker, SITME on June 22, 2010. PLNG operates a 4.45 mmtpa liquefaction plant located in Pampa Melchorita (Cañete), a marine terminal, and a 408 km pipeline that transports natural gas from the prolific Camisea fields (Cusco, Peru). The natural gas for the production of PLNG is supplied from Camisea gas fields pursuant to two separate Gas Supply Agreements with Block 56 and Block 88 for a total of 4.2TCF. Peru LNG is 50% owned by Hunt Oil Company (B1 stable), 20% by Royal Dutch Shell Plc (Aa2 stable), 20% by SK Innovation Co. Ltd (Baa1 stable) and 10% by Marubeni Corporation (Baa2 negative). Moody’s estimates that, in 2018, the company’s revenues and assets will reach close to USD500 million and USD2.4 billion, respectively, while adjusted leverage ratio will hover at about 4.6 times debt/EBITDA.

Corporates

Corporate High-Grade Bond of the Year: Peru LNG

AtlanticIS

As a first-time issuer in the cross-border bond market, Peru LNG drew keen attention from global investors when it issued a high-yield bond last March. At $940 million, priced at 5.375%, it was the largest private sector bond ever issued from Peru.

The securities featured a 9.25-year average life with 12 semi-annual amortizing payments starting in 2024. The company, which operates a natural gas liquefaction plant, used the proceeds to refinance the outstanding debt it drew upon to build the plant. Its success reflected a number of factors. For starters, investors appreciated the company’s recent investment grade ratings from Moody’s, S&P and Fitch.

The company was also coming to market when there was a lack of supply from Peru. Peru LNG would be only the second Peruvian company to come to market in 2018. Peru LNG also conducted a road show in the US, Latin America and Europe, meeting 92 key investors through one-on-one meetings, events and conference calls. In the end, the order book neared $2.5 billion from 115 investors, an oversubscription rate of 2.6 times.

Initial price talk had been set at the mid-5.000%. Investor appetite allowed Peru LNG to reduce the pricing by 12.5 bps through execution.

Corporates

Moody’s assigns first-time Baa2 ratings to Enel Chile and its proposed notes

AtlanticIS

New York, May 30, 2018 — Moody’s Investors Service (“Moody’s”) assigned a Baa2 first-time Issuer Rating to Enel Chile S.A. The outlook is stable. At the same time, Moody’s assigned a rating of Baa2 to the up to $1.0 billion proposed senior unsecured notes due 2028.

The proceeds of the issuance will be used to refinance outstanding borrowings, the proceeds of which were used to fund the acquisition of minority shares of its subsidiary Enel Generacion Chile S.A. (Enel Generacion, Baa1 stable) as part of the corporate reorganization concluded in April 2018, which included the incorporation of a new subsidiary Enel Green Power Chile S.A. (EGP Chile).

The Baa2 Issuer Rating reflects Enel Chile’s leading position in the Chilean generation and distribution markets combined with a strong commercial policy, reflective of a relatively comfortable contracted position at prices which are substantially above system marginal costs. Enel Chile benefits from a diversified and efficient energy generation fleet on a consolidated basis, with generation capacity above its short and medium term contracted positions. Furthermore, the issuer has committed to a modest capital investment program focused on increasing its participation in wind and solar power generation projects accompanied by long term power purchase agreements (PPAs).

Credit metrics are expected to remain strong, with CFO pre WC to debt and Interest Coverage expected to be above 25% and 6.5x, respectively, with a comfortable liquidity position. The rating further considers the structurally subordinated nature of the holding company debt to debt at its operating companies. Despite the large representation of holding company debt (expected to be approximately 35%-40% of total consolidated debt), the debt-free nature of subsidiary Enel Distribucion Chile S.A. (Enel Dx) somewhat offsets the issue despite its low representation of total EBITDA (approximately 17% – 20%) and expected dividend distributions (approximately US$50 million per year).

The Baa2 debt rating assigned to the proposed notes maturing in 2028 reflects their senior unsecured nature. The proposed bond indenture includes typical representations, warranties, and limitations on the addition of secured debt and engaging in sale-leaseback transactions. The indenture does not include financial covenants.

Enel Chile is the largest energy generation company in Chile, with a 28% pro-forma market share in 2017 considering the incorporation of EGP Chile as of April 2018. The company’s diversified energy generation mix, combined with its strong commercial policy, contributes to cash flow predictability. Enel Generacion has more than 20TWh per year under contracts at weighted average prices above US$85/MWh until 2022, while EGP Chile has fully contracted its current and expected generation capacity until 2024. The 17%-20% Ebitda contribution from Enel Dx’s regulated distribution business operating in the country’s largest market provides further comfort. Low geographic diversification, with operations limited to the energy sector in Chile (Aa3 negative), limits the rating.

The necessity to sign and/or renew PPA contracts is an important challenge and a key long term risk exposure. Approximately 35% (committed TWh) of PPAs at Enel Generacion expire by 2025, with the increased participation of wind and solar projects in the matrix leading to a shift in the price deck curve within the Chilean market, as shown in the October 2017 regulated auction. The incorporation of EGP Chile allows the company to manage contractual allocations more efficiently based on each subsidiary’s marginal costs and auction price results.

Currently, there is a moderate capex plan in place. While Enel Generacion’s short term plans are relevant, focused on concluding the Los Condores 150-MW hydro plant and the investments in the Bocamina II plant to improve over environmental issues, it is expected to represent less than 2% of net property, plant, and equipment. EGP Chile has a more ambitious plan, expected to increase installed capacity by 60% by 2024, largely focused on solar plants. In relative terms, Enel Dx’s plans are the largest among the three companies, estimated at 11% of net property, plant, and equipment. On a consolidated basis, capex is viewed as moderate, and estimated at around 6% of net property, plant, and equipment. Despite a strong track record in building generation projects and the relatively low complexity of solar projects, the expected generation capacity growth in EGP Chiles subjects the company to construction execution risks.

Even with the incorporation of a more leveraged company in EGP Chile (approximately 4.3x Debt/Ebitda as of September 2017), the company’s consolidated financial profile remains strong (approximately 2.9x Debt/Ebitda as of March 2018), underpinned by the low leverage of Enel Generacion and only intracompany debt at Enel Dx. We expect the company to post consolidated CFO pre WC to Debt and Interest Coverage ratios ranging between 25% – 30% and 6.5x — 7.5x, respectively, over the next five years.

The proposed senior unsecured notes are expected to partially address the company’s most immediate debt maturities, composed of the bridge loans in total amount of US$1.5 billion due in 2019. As of March 2018, the company’s total consolidated cash position was of approximately $650 million. Consolidated committed credit facilities at subsidiary levels, in total amount of more than US$300 million, further support the company’s liquidity profile.

The stable outlook reflects our expectation that Enel Chile’s subsidiaries will continue to successfully execute its commercial policy by focusing on extending its contracted position while maintaining strong credit metrics.

Infrastructure

Moody’s Affirms A3 Rating of Peruvian CRPAO Backed Transactions; Outlook Stable

AtlanticIS

New York, September 11, 2018 — Moody’s Investors Service (“Moody’s”) affirmed the A3 ratings assigned to the senior secured notes issued by Interoceanica IV Finance Limited, Peru Enhanced Pass-Through Finance Limited and IIRSA Norte Finance Limited. The outlooks are stable.

RATING RATIONALE

Today’s rating action considers that the financing structures for the aforementioned transactions are performing as expected and remain closely linked to the credit quality of the Government of Peru (A3 stable). The transactions are backed by Certificados de Reconocimiento de Derechos del Pago Annual por Obras (“CRPAOs”) issued by the Government of Peru. The CRPAOs are unconditional, irrevocable, fixed, US dollar denominated obligations of the Government of Peru. Once issued, the right of the CRPAO holder to collect the GOP payment is not subject to the company’s performance levels or by any other circumstances including destruction of the works performed, change of control of the company, or breach or termination of the Concession Agreement.

Given that the construction related to the CRPAOs that are pledged to the payment of the Notes on the three transactions is complete, all of the related CRPAOs have been purchased. Thus, the payment of debt service on the senior secured notes depends entirely on the payment of the CRPAOs by the Ministry of Transportation and Communication (“MTC”) of the Government of Peru. As such, the ratings and outlooks assigned to the transaction are closely linked to the rating and outlook of the Government of Peru.

The rating outlooks are stable reflecting the outlook on the Government of Peru’s rating.

WHAT COULD CHANGE THE RATING UP/DOWN

Given the structure of debt payments which rely on the Government of Peru’s ability and willingness to budget and appropriate CRPAO payment obligations annually, the rating of the project is closely tied to the sovereign rating of Peru. Conversely, A failure of the Government of Peru to honor any annual payments or concession termination without adequate compensation could have negative implications on the rating. Any changes in the rating of the Government of Peru would likely impact the rating of the debt obligations.

Given that the Notes’ structures de-link the transaction with the underlying assets’ volume and tariff risk (toll roads), and the exposure to the Government of Peru, the methodology used for these ratings is the Generic Project Finance methodology.

 

Corporates

Moody’s assigns Ba2/Aa3.br ratings to Cyrela’s proposed up to BRL 405 million debentures; stable outlook

AtlanticIS
Sao Paulo, May 11, 2018 — Moody’s América Latina Ltda. (“Moody’s”) assigned Ba2 / Aa3.br ratings to Cyrela Brazil Realty S.A. Empreendimentos E Participações (“Cyrela”)’s proposed up to BRL 405 million senior unsecured debentures due in 2022. The outlook for the rating is stable.

Cyrela’s Ba2/Aa3.br ratings are supported by its solid position in the Brazilian homebuilding market, with a strong brand name, good diversification in terms of product offerings and experienced management team. Additional credit positives include the company’s still-adequate operating performance even in adverse market conditions, good liquidity and low leverage.

At the same time, a slow and gradual recovery in Brazil’s homebuilding industry will likely translate into more soft revenue and lower new housing start growth rates, and reduced business opportunities, which will keep Cyrela’s operating performance below pre-recession levels at least until year-end 2018. Another credit concern is Cyrela’s long-term receivables from finished units, which expose the company to client delinquency risk.

Cyrela’s operating performance deteriorated during the downturn in Brazil’s homebuilding industry, but remained generally strong. The company’s revenues declined to BRL2.7 billion in 2017, 54% less than that in 2014, but adjusted gross margins remained stable at 30%-36%. While we expect revenues to remain at around BRL3.0 billion in 2018, with recovery only likely from 2019 onward, free cash flow should continue high at around BRL400-500 million in 2018 on the fast pace of inventory monetization and lower new housing starts.

As well, Cyrela’s leverage ratio will continue to decline as the company amortizes at least a portion of its upcoming debt maturities and remains prudent in managing creditor and shareholder returns to preserve its creditworthiness. The company’s leverage ratio declined to 29.6% at the end of 2017 from 34.3% a year earlier due to lower funding requirements for new projects and to Cyrela’s strategy to adequate its capital structure to the lower sales environment in Brazil.

Cyrela’s liquidity profile is also good, with BRL1.1 billion in cash and equivalents at the end of March 2018, sufficient to cover total reported short-term debt maturities by 0.9x. Furthermore, Cyrela has around BRL1.4 billion in receivables from finished units that should become available with the effective transfer of mortgages to lending banks and ample availability of committed project loans under the SFH program. The proposed debentures will enhance the company’s financial flexibility further and allow it to use cash in excess to amortize upcoming debt maturities, thus lengthening its debt maturity schedule. Pro forma for the transaction, we expect Cyrela’s cash coverage of short term debt to increase to 1.3x.

The proposed senior unsecured debentures will be effectively subordinated to Cyrela’s existing secured debt. Despite the effective subordination they are rated at the same level as Cyrela’s CFR given the high amount of unencumbered assets that covered unsecured debt by 4.3x at the end of 2017 based on our estimates and that in case of a default should provide good recovery for the unsecured instruments. At the end of 2017, approximately 60% of Cyrela’s outstanding debt was secured, mainly related to SFH loans that are secured by specific real estate assets.

The stable outlook reflects our expectation that the deterioration in the company’s operating performance and in Brazil’s homebuilding industry has bottomed out, and both the company’s performance and the industry will recover slowly and gradually in the next 12-18 months.

A rating upgrade would depend on an upgrade of Brazil’s (Ba2 stable) sovereign rating. A rating upgrade would also require the total debt to-capitalization ratio to remain consistently below 40% (29.6% in 2017) and EBIT interest coverage to increase above 4.5x (0.9x in 2017).

A downgrade could be triggered if there is a material deterioration in Cyrela’s cash availability to cover short-term debt (0.9x in March 2018), or if the total debt-to-capitalization ratio increases to above 50% for an extended period. A meaningful increase in the proportion of secured debt or a decrease in the amount of unencumbered assets that could be used to pay down unsecured debt could also result in a downgrade of Cyrela’s unsecured ratings. A downgrade of Brazil’s sovereign rating would also trigger a downgrade of Cyrela’s ratings.

Founded in 1962 and headquartered in São Paulo, Brazil, Cyrela has a history of over 50 years in the homebuilding market and is one of the largest fully integrated homebuilders in the country, with operations in the low, middle and high income housing segments. In 2017, Cyrela reported net revenue of BRL2.7 billion ($837 million) and net losses of BRL95 million ($29 million), mainly related to non-cash provisions.