Fitch Affirms Reventazon Finance Trust's Fixed-Rate Notes at 'BBB-'; Outlook Negative

CHICAGO--()--Fitch Ratings has affirmed Reventazon Finance Trust's (RFT) USD$135 million fixed-rate notes as follows:

--USD$135 million fixed-rate notes at 'BBB-'; Outlook Negative.

Fitch's rating addresses timely payment of interest and ultimate payment of principal at legal maturity and does not include any potential acceleration amounts.

KEY RATING DRIVERS

Reliance on ICE Lease Payments: Notes are backed by 100% participation interest on the IDB's B-loan acquired through a participation agreement, which gives the right to receive payments under IDB's B-loan. ICE lease payments from a non-cancellable financial lease agreement for the operation and maintenance of the hydropower plant will cover all payments on the loan.

Credit Quality of ICE: Given the unconditional and irrevocable nature of the lease payments, Fitch views the credit risk of these payments as linked to ICE's credit quality. On July 22, 2016 Fitch affirmed ICE's Long-Term Foreign Issuer Default Rating (IDR) at 'BB+'/Outlook Negative. Grupo ICE's ratings are supported by its linkage to the sovereign rating of Costa Rica (Foreign and Local Currency IDRs 'BB+'/Outlook Negative), which stems from the company's government ownership and the implicit and explicit expectation of government support

Strength of the Lease Payments: To determine the strength of the lease payment obligation Fitch considered the role of IDB as lender of record of the obligation being covered by ICE's payments tied to ICE's ownership structure. As the IDB will continue to be the lender of record and administers IDB's B-loan, Fitch believes the holders of the rated notes will benefit from the B-loan preferential, de facto, status provided by IDB. Because of this benefit the credit quality of the payment obligation is considered to be in line to other obligations of Costa Rica with the IDB and therefore was notched upward from the ICE's IDR.

Preferred Creditor Status of IDB to Costa Rica: Historically, sovereigns have prioritized certain obligations, such as obligations from multilateral development banks (MDBs), when the government cannot service all of the country's external debt. While the B-loan is not a direct obligation of the sovereign, Fitch believes treatment of the IDB as a preferred creditor extends to ICE as the debtor, since ICE is a strategic government-owned entity that receives underlying sovereign support.

Although Costa Rica has defaulted in the past (for example in 1981), neither the sovereign nor ICE have ever defaulted on debt issued by a preferred creditor. Historically, IDB's share of Costa Rica's external debt has been within 12% to 13%, which makes it an essential preferred creditor for the country.

Adequate Liquidity: The rated fixed-rate notes benefit from a debt service reserve account equivalent to the next principal and interest payment due amount. This liquidity provides certainty in case the transaction is exposed to temporary liquidity shock. As of Sep-2016, external account balance stands at close to US$14.6 million, which covers for Nov-16 issued notes payment.

Criteria Variation: Fitch's "Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes", dated March 8 2016, establishes that the credit quality of the primary risk contributors in a credit linked notes (CLNs) transaction is typically determined by an IDR assigned by Fitch. However, in some situations, a committee would consider using the actual bond rating (e.g. senior unsecured rating, subordinate rating) of an asset in place of the IDR.

For this transaction, it has been determined that the credit quality of the primary risk contributor is not commensurate with the IDR or any particular bond rating of the obligor, as IDRs do not directly address all forms of obligations including Fitch's view regarding a preferred creditor obligation. To determine the credit quality of the lease payment obligation, and its notching from the relevant IDR, the agency incorporated perspectives from its sovereign and corporates group.

RATING SENSITIVITIES

A downgrade of ICE, tied to a rating of the sovereign, may trigger a downgrade of the transaction's rating. However, a rating action of ICE not tied to a rating downgrade of the sovereign may not trigger a rating action on the notes if Fitch's view on the strength of the payment obligation is not affected by such rating action. Additionally, changes in Fitch's view of the treatment of the IDB as a preferred creditor may trigger a rating action on the notes.

DUE DILIGENCE USAGE

No third-party due diligence was provided to or reviewed by Fitch in relation to this rating action

Additional information is available at www.fitchratings.com.

Sources of Information:

In addition to the sources of information identified in the master criteria, this action was additionally informed by the sponsor.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
https://www.fitchratings.com/site/re/886006

Criteria for Country Risk in Global Structured Finance and Covered Bonds (pub. 26 Sep 2016)
https://www.fitchratings.com/site/re/881269

Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes (pub. 08 Mar 2016)
https://www.fitchratings.com/site/re/878513

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
https://www.fitchratings.com/site/re/883130

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1014958

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https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst:
Jose Pablo Zuniga, +1-312-368-2053
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson:
Greg Kabance, +1-312-368-2052
Managing Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Jose Pablo Zuniga, +1-312-368-2053
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson:
Greg Kabance, +1-312-368-2052
Managing Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com