Fitch: Brazilian Offshore Structured Financings Navigate Choppy Waters

CHICAGO--()--Fitch Ratings continues to monitor the impact a potential weakening of sponsor groups given the ongoing Petrobras investigations and stressed oil prices may have on Brazilian oil vessel-backed transactions, according to a new Fitch video.

Oil vessel-backed structured finance transactions are directly and indirectly exposed to sponsor/operator risk as the underlying contracts have termination clauses related to bankruptcy of certain counterparties and vessel performance. Moreover, a sponsor group's financial condition could influence an asset's operating performance.

"Recently Petrobras temporarily banned some transaction sponsors from engaging in future contracts, but Fitch believes that given the importance of the assets to the national energy sector, it is unlikely Petrobras would seek to terminate existing agreements as long as contracted day rates remain in line with current market day rates, and the assets are performing as expected," says Greg Kabance, Managing Director.

Stressed oil prices pressure exploration and production (E&P) capex investments, utilization rates and global day rates, which affect asset values. Currently, contracted day rates on the underlying assets remain in line with depressed global market rates; however, a sustained long-term decline in oil prices may decrease market day rates below contracted day rates. This could potentially have a negative impact on the rates under which assets will be able to re-contract and increase the contract exposure to potential termination.

However, despite adverse market conditions, Fitch believes Brazilian supply and demand fundamentals for ultra deepwater (UDW) rigs will support medium-to-long-term asset values and corresponding loan-to-value levels, and ultimately protect Fitch-rated drilling rig bonds.

The video 'Brazilian Offshore Structured Financings Navigate Choppy Waters' is available at www.fitchratings.com.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Criteria for Rating Oil Vessel-Backed Financing in Latin America' (December 2014);

--'What Investors Want to Know: Lava Jato Implications (January 2015);

--'Fitch Downgrades Oil Vessel-Backed Financings Sponsored by Odebrecht' (February 2015);

--'Fitch Places QGOG Atlantic/Alaskan Rigs Ltd.'s Senior Secured Notes on Rating Watch Negative' (February 2015);

--'Fitch Downgrades Schahin II Finance; Places Schahin-Sponsored Transactions on Watch Negative' (February 2015).

Applicable Criteria and Related Research:

Criteria for Rating Oil Vessel-Backed Financing in Latin America

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=834309

What Investors Want to Know: Lava Jato Implications (Scandal Impacts Petrobras - Suppliers, Construction Companies and Drilling Rigs)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=861361

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Contacts

Fitch Ratings
Greg Kabance, +1-312-368-2052
Managing Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Cinthya Ortega, +1-312-606-2373
Director
or
Gregory Lane, +1-312-606-2304
Associate Director
or
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Greg Kabance, +1-312-368-2052
Managing Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Cinthya Ortega, +1-312-606-2373
Director
or
Gregory Lane, +1-312-606-2304
Associate Director
or
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com