Fitch Affirms Lancer Finance Company (SPV) Limited 2010-1 Notes at 'BBB-'
CHICAGO -- October 14, 2013
Fitch Ratings has affirmed the rating assigned to the 2010-1 notes issued by
Lancer Finance Company (SPV) Limited (Lancer SPV) as follows:
--US$270,000,000 2010-1 notes at 'BBB-'; Outlook Stable.
The notes are backed by the flows related to the charter agreement signed with
Petroleo Brasileiro S.A. (Petrobras) for the use of the dynamically positioned
drillship S.C. Lancer. Schahin Engenharia S.A., of Brazilian-based Schahin
group, is the operator of the vessel and sponsor of the transaction.
KEY RATING DRIVERS
The rating affirmation reflects S.C. Lancer's strong uptime performance that
offsets a rise in operating expenses (opex); current liquidity protections and
continued de-leveraging of the transaction in terms of loan-to-value (LTV)
ratios; and the positive environment for local content providers in the
Brazilian oil and gas industry.
The rig was not operating for 38 days in April and May due to scheduled dry
docking, including navigation and moving. As a result of the collections
shortfall related to the last scheduled dry docking before scheduled maturity,
the transaction used all cash from the Dry Dock Revenue Reserve Account plus
freshly-injected capital from the sponsor to make debt service payments in
June and July. The use of funds from the Dry Dock Revenue Reserve Account was
contemplated in Fitch's base case analysis at closing; however, the dry dock
period took longer than expected and management elected to inject capital to
cover this shortfall instead of tapping other transaction reserves.
During the 12-month period ending in August (excluding dry docking), the S.C.
Lancer averaged 98.13% uptime, above Fitch's expectations and the vessel's
The transaction benefits from $33.9 million in liquidity reserves, down from
$35.1 million after depleting the Dry Dock Reserve Revenue Account. Since the
next scheduled dry dock is expected to occur after the maturity of the notes,
no additional funds will be deposited into the Dry Dock Reserve Account.
Liquidity reserves include a 12-month interest reserve account.
During the last 12 months reported, average daily opex registered a 20%
increase over the budgeted amount due to high labor costs. The Fitch-adjusted
monthly DSCR, which considers charter and service revenues and total opex,
averaged 1.19x in 2013 when excluding months affected by scheduled dry
docking. The transaction trigger monthly DSCR, which considers charter
revenues and collection account deposits, averaged 1.56x in 2013 during months
unaffected by scheduled dry docking.
Given scheduled amortization of the notes and reduction in the value of the
vessel, the net LTV continues to decrease in line with Fitch's expectations.
Fitch also considers the strategic importance of the Brazilian oil and gas
industry, evidenced by Petrobras' robust investment plan. Demand for existing
drillships in Brazil is expected to remain strong.
The transaction's rating may be sensitive to S.C. Lancer's operating
performance, including uptime and daily opex, and to changes in the credit
quality of Petrobras.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--Global Structured Finance Rating Criteria (May 24, 2013);
--Rating Criteria for Infrastructure and Project Finance (July 12, 2012);
--Drilling Rig Financing - Brazil Runs Ultradeep (Sept. 6, 2012).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Rating Criteria for Infrastructure and Project Finance
Drilling Rig Financing -- Brazil Runs Ultradeep (Assessing Risks in a
Developing Asset Class)
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Fitch Ratings, Inc.
70 W Madison
Chicago, IL 60602
Elizabeth Fogerty, +1-212-908-0526 (New York)
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