Fitch Affirms CE Oaxaca Cuatro, S. de R.L. de C.V.'s Senior Secured Notes at
MONTERREY, Mexico -- June 20, 2013
Fitch Ratings affirms the 'BBB-' rating on CE Oaxaca Cuatro, S. de R.L. de
C.V.'s (Oaxaca IV) USD150.2 million (USD150 million outstanding) senior
secured notes due 2031. The Rating Outlook remains Stable.
The rating affirmation and Stable Outlook reflects cash flows which are
expected to remain stable under fixed-price contracts with investment grade
KEY RATING DRIVERS
--Moderate Operation Risk: The rating reflects the risks inherent to the
operation of a recently opened facility over the long term. In its favor, it
benefits from proven turbine technology, and initial technical support from
the manufacturer. Given that the operation, maintenance and guarantees are
provided by Acciona Energia Mexico, S. de R.L. de C.V. (AEM), the project's
operational performance is linked to its sponsor's long-term prospects.
--Low-Variability Wind Resource: Wind P50 original estimates have been
exceeded. The non-diversified, single-site nature of the project is partially
mitigated by its location in a region that benefits from an attractive wind
resource and where energy generation probability scenarios were based on
almost 10 years of long-term reference data on-site or nearby. In its
financial analysis, Fitch takes into account the potential for lower wind
conditions that could negatively affect output.
--Fully Contracted Revenues: 100% of energy generated is contracted under a
20-year fixed-price Power Purchase Agreement (PPA) with an investment-grade
off-taker. There are no penalties if production is lower than expected, which
effectively mitigates revenue risk. Mexico's Federal Electricity Commission
(CFE) is the government controlled power utility in Mexico (foreign currency
long-term Issuer Default Rating [IDR] 'BBB+' with Stable Outlook).
--Back-Ended Amortization: The amortization schedule establishes that more
than 40% of the debt will be paid in the final five years of the tenor, which
could potentially worsen a trend of rising costs or underperformance at the
end of project's life. Structural features such as distribution tests as well
as the project's resilience to significant operation and maintenance (O&M)
cost increases contribute to mitigate such risk.
--Mid-Range Financial Performance: Leverage is moderate. Debt service coverage
ratio (DSCR) is projected to remain consistent with minimal deviations from
average over life of the debt. Under Fitch rating case conditions, which
contemplate higher O&M costs combined with reduced energy production, the DSCR
is expected to average 1.35x, with a minimum of 1.33x. Coverage levels are in
line with Fitch's applicable criteria and other similarly rated transactions.
--Greater than expected wind resource volatility, or consistent performance
below the P50 levels;
--Expenses persistently higher than expected especially if, all other
variables kept stable, costs constantly surpass budget by double-digit
--Change in off-taker rating: A downgrade of CFE's current rating to a rating
level below 'BBB-'.
Among others, the notes are mainly secured by a first-priority interest in the
collateral, such as the capital stock of the issuer, the project documents'
rights, all existing and future tangible and intangible property, and sponsor
guarantees under the engineering, procurement and construction (EPC) and O&M
Cash flows have been and are expected to remain solid. Revenue comes solely
from the electricity rendered under the PPA with exclusive off-taker CFE, at a
fixed pre-defined price of USD64.8 per megawatt hour (MWh) in 2013, which
increases annually up to USD108.7/MWh in 2031 and is partially readjusted by
the U.S. Producer Price Index.
2012 real performance overcame Fitch's expectations. Higher turbine
availability coupled with favorable wind conditions resulted in increased
electricity generation and USD28.8 million revenues. Five-month
(August-December) average was 99.7% versus 96% for turbine availability, and
55.5% versus 49.7% for plant capacity factor.
Total expense was USD2.7 million, slightly over the USD2.5 million budget and
cash available for the debt service of the first payment made in December 2012
reached USD12.9 million, resulting in a 2.86x natural coverage. This ratio was
calculated based on the information of the 'DSCR Calculation Certificate'
provided by the company pursuit to the Indenture. The cash flow used for this
calculation was benefited by some O&M and other expenses covered by the
company before the bonds were placed. For future payment dates, DSCR are
expected to normalize.
As of the first quarter of 2013, operational figures also surpassed Fitch's
original base case. Three-month (January-March) average was 99.2% versus 96%
for turbine availability, and 56.1% versus 49.7% for plant capacity factor.
This stemmed in a 125,584 MWh production, over the 111,113 MWh estimated.
Starting in 2014, the turbine maintenance expense will be paid by the project
and no longer by the EPC contractor. No impact is foreseen on coverage ratio,
though, given the amortization schedule was designed taking this into account.
Current balance in reserve funds is USD0.2 million for the O&M account and
USD7.8 million for the debt service reserve account, in line with the
established target balances. In preparation for the significant increase in
the O&M fund's target balance starting in 2014 (USD3.3 million approx.), this
account will be funded to reach USD1.85 million by the end of June 2013.
Fitch's Base Case assumed IE's P50 10-year capacity factor, 96% turbine
availability, 0% increase to O&M budget, and 3% net generation reduction to
all years, in order to reflect the potential for additional forecast error in
the wind study and the impact of occasional reliability issues. Under this
scenario, debt is fully paid, and DSCR is 1.43x minimum and 1.59x in average.
Loan Life Coverage Ratio (LLCR) is 1.68x.
Fitch's Rating Case adds additional stresses to the Base Case by including
IE's P90 one-year capacity factor, 96% turbine availability with 1% decrease
every two years following year 15, 7.5% increase to O&M budget for years 1-15
and 12.5% for years 16-20, and 3% net generation reduction to all years. The
results were DSCR of 1.33x minimum and 1.35x average. LLCR is 1.43x.
Oaxaca IV is a Mexican special purpose vehicle (SPV) created by AEM to own and
operate a 102-megawatt (MW) wind farm located in the Isthmus of Tehuantepec in
Oaxaca, in southern Mexico. It is an indirect subsidiary of Acciona, S.A.
(Acciona), one of the largest Spanish private groups whose core businesses are
infrastructure, water and renewables.
The facility reached commercial operation in March 5, 2012 with a demonstrated
capacity of 103.7 MW. It comprises 68 1.5-MW turbines manufactured by related
company Acciona Windpower, S.A. (AWP), which has installed over 2,500 similar
units reaching 3,750 MW with a global average fleet availability of over 98%.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 11, 2012);
--'Rating Criteria for Onshore Wind Farm Projects' (April 11, 2013).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Onshore Wind Farm Projects
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