CHICAGO--(BUSINESS WIRE)--Fitch Ratings rates the senior secured notes issued by Lima Metro Line 2 Finance Limited as follows:
--$1,154,923,000 series 2015-1 notes due 2034 'BBB'; Outlook Stable.
KEY RATING DRIVERS
--No Construction/Performance Risk
RPIs are unconditional and irrevocable obligations of the government of Peru (foreign currency [FC] Issuer Default Rating [IDR] 'BBB+'/Outlook Stable) to cover any shortfalls if the collections from the project are not sufficient to make timely payments on the investment recognition certificates or Retribucion Por Inversiones (RPI-CAO). Payments on the RPI-CAOs are not subject to the completion of further milestones or future performance of the project.
--Reliance on Sovereign Contingent Guarantee
Fitch assumes that payment on the notes will completely rely on government contingent support to make timely RPI payments. While the transaction has the right to tariff collections, Linea 2 is a greenfield project; thus, no historical information is available to validate the potential flows expected to be received from tariff collections.
--Moderate Budgetary-Approval Risk
Fitch believes that the most reliable and common source of RPI payment from the government of Peru (GOP) will be through a regular annual budgeting process. The annual budget is approved by the Ministry of Finance (MEF) and could be exposed to political and budgetary risk, which is reflected in the rating assigned to the transaction. Budgetary risk is mitigated by adequate liquidity within the transaction.
--Rating Linked to Sovereign IDR
Not all payment defaults of the sovereign would cause a sovereign IDR default. RPI-CAOs are contractual obligations of the GOP but are not considered public debt. As sovereign ratings do not directly address all forms of obligations, it cannot be assumed that the credit profile of the government obligation backing this government-backed security (GBS) is consistent with Peru's IDR. To determine the strength of the government obligation and its differentiation from the relevant sovereign IDR, Fitch incorporated perspectives from its sovereign group and determined that the credit quality of the obligation is commensurate with the rating of the transaction, and one notch below Peru's foreign currency (FC) IDR.
The transaction benefits from a 12-month (four quarterly RPI-CAO payments) debt service reserve account (RPI Reserve Account). The RPI reserve account is expected to be fully funded one year prior to the first RPI-CAO payment date. If the project is delayed and the reserve account is not fully funded, the government will budget the full amount. The trust agreement provides the ministry of transportation and communications (MTC) with clear guidelines in terms of timing and amounts to be budgeted to guarantee that the funds are sufficient and received in a timely manner to pay the RPI-CAOs.
--Mitigated Negative Carry Risk
Prior to the purchase of 100% of the RPI-CAOs (availability period), transaction expenses will be higher than the income generated by the RPI payments. The negative carry will be properly mitigated by the upfront funding of a trust account that will be used to cover expenses including transaction fees and interest during construction (IDC). RPI-CAO payments will not begin until the earlier of the start of the operation of Phase 2 of the project and September 2019.
--Early Redemption Protections
Upon a commitment termination event (CTE), the noteholders will be made whole with the remaining amounts not invested to purchase RPIs, and with the protection letters of credit (LOCs). At closing the LoCs will be issued by Banco Santander S.A ('A-'/Outlook Stable), Sumitomo Mitsui Banking Corporation ('A-'/Outlook Stable), and HSBC Bank USA ('AA-'/Outlook Stable) in an amount equal to $99.144 million. The LOC providers will be at all times rated at least 'BBB+' or the CTE protection will provide through cash collateral, in each case provided by the CTE protection provider. The size of the LOCs will be equal to the maximum remaining negative carry.
--Early Redemption Amounts
Following a CTE, the notes will be redeemed early in an amount equal to the amounts not invested to purchase RPIs. After that, the indenture trustee will revise the amortization schedule for the notes based on the expected cash flows from the RPI-CAOs that have been purchased.
The ratings assigned to series 2015-1 notes issued by Lima Metro Line 2 Finance Limited are sensitive to changes in Peru's foreign currency (FC) Issuer Default Rating. Additionally, any change in Fitch's view regarding the strength of the sovereign contingent guarantee may affect the rating assigned to this transaction.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
The notes are backed by investment recognition certificates or RPI-CAOs related to the construction and provision of rolling stock of Line 2 and the Faucett-Gambetta Branch of the Lima and Callao Metro (Linea 2). RPI-CAOs are unconditional and irrevocable rights to receive through the project trust a series of 60 quarterly payments of a fixed amount denominated in U.S. dollars.
Additional information is available at www.fitchratings.com.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
Global Structured Finance Rating Criteria (pub. 31 Mar 2015)
Dodd-Frank Rating Information Disclosure Form