NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns a 'BBB-' long-term rating to Energia Eolica's USD204 million senior notes maturing in 2034. The Rating Outlook is Stable.
Energia Eolica issued US$204 million of senior secured notes with a legal maturity in 2034. The notes were structured with a fixed amortization schedule, with a fixed 6.00% interest rate. The notes were sold at a discount yielding 6.25%.
KEY RATING DRIVERS
Fitch's ratings are based on the following factors, among others:
--Moderate Operation Risk: The rating reflects the risks associated with the recent start of operations of wind farm facilities over a 20-year term. Favourably, the project benefits from proven turbine technology and initial operating support from the manufacturer. Plant performance should experience low variability, as Vestas will initially operate the turbines under a 10-year agreement. A three-month operating and maintenance reserve provides short-term liquidity for unanticipated cost escalations. [Operation Risk - Midrange]
--Fully Contracted Production: Two 20-year power purchase agreements (PPAs) with the Peruvian electric grid as an offtaker account for 100% of the project's generated energy. The project is exposed to penalties to the extent annual energy production falls below a certain threshold through a tariff correction factor. As a partial offset, the concession allows for a one-time reduction in the threshold for energy production after the initial four-year period to minimize future penalties. Curtailment risk is low in the intermediate term but could rise as the country derives an increasing share of energy from renewable sources. [Revenue Risk - Volume - Midrange]
--Stable Tariffs: Both Cupisnique and Talara benefit from 20-year fixed-price power purchase agreements (PPAs) with the Peruvian electric grid as offtaker. Reasonable production requirements under respective concession agreements provide revenue stability through long-term PPAs for each project. [Revenue Risk- Price - Midrange]
--Sufficient Wind Resources: Total generation output in Fitch's rating case is based upon a one-year P90 estimate of energy production to mitigate the potential of lower than expected wind resource. Additionally, the project is able to meet debt obligations in a scenario of one-year P99 generation.
--Manageable Debt Structure: The project's fixed-rate, fully amortizing debt through 2034 with a six-month debt service reserve, three-month O&M reserve, and equity distribution lock-up trigger at 1.20x DSCR provide sufficient liquidity in stress scenarios. [Debt Structure: Midrange]
--Adequate Financial Coverage: DSCR levels under the base case average 1.83x with a minimum of 1.75x. DSCRs under the rating case, average 1.32x with a minimum of 1.28x. The resulting coverages are consistent with investment-grade ratings.
--Peer Analysis: The project's leverage at 8x net debt-to-EBITDA is in line with its peers such as Oaxaca II and Oaxaca IV at 7.4x for both projects. Financial coverage ratios are comparable to the two Oaxaca projects as well, as rating case DSCR averages 1.32x for Inka while it is 1.36x for Oaxaca II and 1.35x for Oaxaca IV on average. Attributes for the three projects are midrange except in the case of price, where the Oaxacas score stronger. This is partially offset by higher average base case DSCR for Inka (1.83x vs. 1.59x).
RATING SENSITIVITIES
Positive
--Energy production consistently and substantially performing above P50 levels.
Negative
--Energy production consistently and substantially underperforming P90 level;
--Operating expenses that are persistently higher than projections leading to a deterioration in DSCR to below 1.30x under the rating case.
Security
The notes are mainly secured by a first-priority interest in the collateral, which includes a pledge on all capital stock of the issuer, all project documents, all existing and future tangible and intangible assets of the issuer, all revenue, project, collateral, reserve accounts, and cash or cash equivalent maintained in the accounts.
Transaction Summary
Energia Eolica (the project) consists of two wind farms located in the coastal areas of northwestern Peru. Combined, the Cupisnique and Talara wind farms have a combined nameplate capacity of 113.93 MW. Overall, the project contains 45 Vestas V-100 (1.8 MW) for Cupisnique and 17 Vestas V-100 (1.8 MW) turbines manufactured by Vestas Wind Systems A/S.
Vestas is also the O&M provider under a 10-year agreement for a full scope of scheduled and unforeseen maintenance. After the 10-year period, ContourGlobal plans to take over O&M for the remaining life of the concession. The project's 20-year fixed price contract with the government requires Cupisnique to generate 303 GWh/yearly (Capacity Factor 41.6%) and for Talara to generate 119.7 GWh/yearly (Capacity Factor 44.2%).
Debt proceeds were used to repay a Cofide loan (USD116.9 million and construction cost (USD21.2 million). Moreover, proceeds of USD48.6 million were used to reduce the sponsor's equity position (via the repayment of inter-company loans) from 55% to 19% and fund debt service and O&M reserve accounts (USD8 million). Additionally, proceeds were used to pre-fund an additional reserve for potential shortfalls in debt service and O&M expenses for the first two quarterly payments (USD2.9 million). The remaining proceeds were used to cover financing and transaction-related costs.
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 Onshore Wind Farm Projects' April 11, 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 Onshore Wind Farm Projects
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=705018
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=956295
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