Fitch Affirms Odebrecht Drilling Norbe VIII / IX Ltd., Series 2010-1 at
CHICAGO -- February 18, 2014
Fitch Ratings has affirmed the rating assigned to the 2010-1 notes issued by
Odebrecht Drilling Norbe VIII / IX Ltd. (Odebrecht Drilling) as follows:
--US$1.5 billion 2010-1 notes at 'BBB'; Outlook Stable.
The notes are backed by the flows related to two charter agreements signed
with Petroleo Brasileiro S.A. (Petrobras) for the use of the dynamically
positioned ultra-deepwater (UDW) drillships Norbe VIII and Norbe IX. Odebrecht
Oleo e Gas S.A. (OOG) is the sponsor of the transaction and operator of the
vessels. The transaction also benefits from a mortgage on both vessels.
Fitch's rating addresses the timely payment of interest on a semiannual basis
and ultimate payment of principal by legal final maturity. The outstanding
balance of the notes is US$1.35 billion, and the next debt service payment is
scheduled for June 30, 2014.
KEY RATING DRIVERS
The rating affirmation reflects (i) positive industry dynamics and Petrobras'
credit quality in its role as ultimate offtaker of the vessels; (ii) the
temporary assignment of Norbe VIII and its underlying contracts to Total E&P
do Brasil Ltda (Total Brasil) and Total Brasil's credit quality as temporary
offtaker; (iii) the quality and implicit support of OOG as sponsor of the
transaction and operator of the rigs; (iv) the expected long-term uptime
performance of Norbe VIII and Norbe IX; (v) higher-than-expected operating
expenses (OPEX), and (vi) current liquidity protections and the continued
de-leveraging of the transaction in terms of loan-to-value (LTV) ratios.
On Jan. 5, 2014, Petrobras temporarily assigned its rights and obligations
under the charter agreement to Total Brasil, a wholly-owned subsidiary of
Total S.A. Once the 228-days assignment period ends, the contract will revert
back to Petrobras as offtaker. Moreover, Petrobras must resume its obligations
under the charter agreement in events of early termination or default by Total
Brasil under the contract.
Total Brasil is closely linked to its parent Total S.A. Fitch rates Total S.A.
'AA/Stable' based on the E&P company's significant production scale,
competitive production costs relative to peers, and a well-diversified and
vertically integrated profile across segments that allow it to retain a
significant share of the global oil and gas industry.
The Federal Government of Brazil and Petrobras have passed several initiatives
seeking the development of the local oil and gas industry. UDW rigs are
essential assets for continued research and development of new oil fields in
Brazil. Investments by Petrobras and regulation/legislation imposed by the
government should continue to provide a stable credit environment for sponsors
and protect the value of these assets. Petrobras carries local and foreign
currency Issuer Default Ratings (IDRs) of 'BBB' with a Stable Outlook.
OOG is the largest Brazilian operator of UDW rigs chartered to Petrobras, with
seven operating UDW in its fleet. The company is majority owned by Odebrecht
S.A., a diversified conglomerate with significant financial flexibility and
strong ties to Petrobras and the federal government.
After ramping up in 2011 and the first half of 2012, uptime levels averaged
94.5% and 94.9% for Norbe VIII and Norbe IX, respectively, before Norbe VIII
suffered sporadic downtimes in the fourth quarter (4Q'13) of 2013 due to a
sequence of one-time repairs. Fitch expects both vessels to operate within the
range of 95% uptime on a long-term basis.
While the transaction considers budgeted OPEX and total revenue for purposes
of computing debt service coverage ratio (DSCR), Fitch also analyzes the
impact of actual OPEX on DSCRs during a particular period. The transaction
DSCR of 1.27x in 2013 remains comfortably above the debt service trigger,
however due to the sporadic downtime during the 4Q'13 and general increase in
OPEX above expected levels over the past two years, the Fitch-adjusted DSCR
has been negatively impacted. The transaction allows OOG to subsidize OPEX in
excess of budgeted amounts and therefore this does not have a direct impact on
transaction cashflows. These payments imply some level of support from the
sponsor and therefore Fitch will continue to monitor actual OPEX and analyze
any long run impact greater-than-expected levels have on DSCRs and valuations.
The transaction benefits from liquidity reserves equivalent to one semiannual
principal and interest amortization debt service payment and three months of
offshore operating and maintenance expenses on each vessel. Additionally, the
transaction has approximately $12.1 million in cash reserves.
Given scheduled amortization of the notes, the net LTV continues to decrease
in line with Fitch's expectations.
The transaction's rating may be sensitive to the operating performances of
Norbe VIII and Norbe IX and to changes in the credit qualities of Petrobras
and Total Brasil (during the assignment period). Extended periods of downtime
that cause Fitch to revise its expected uptime assumption of 95% could lead to
rating downgrades. Fitch will continue to monitor OPEX levels and their effect
on the Fitch-adjusted DSCR. Additionally, the foreign currency IDR assigned to
Petrobras acts as the implied cap to drilling rig transactions in which it
acts as offtaker.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--Criteria for Rating Oil Vessel-Backed Financing in Latin America (Jan. 14,
--Global Structured Finance Rating Criteria (May 24, 2013).
Applicable Criteria and Related Research:
Criteria for Rating Oil Vessel-Backed Financing in Latin America
Global Structured Finance Rating Criteria
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Gregory Lane, +1 312-606-2304
Fitch Ratings, Inc.
70 W. Madison
Chicago, IL 60602
Cinthya Ortega, +1 312-606-2373
Greg Kabance, +1 312-368-2052
Elizabeth Fogerty, +1 212-908-0526
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