Fitch Affirms Schahin II Finance Company (SPV) Ltd. Notes at 'BBB-'; Outlook
CHICAGO -- March 14, 2014
Fitch Ratings has affirmed Schahin II Finance Company (SPV) Limited's series
2012-1 notes as follows:
--US$750 million senior secured 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
ultra-deepwater (UDW) drillship called 'Sertao' for the term of 10 years.
Schahin Petroleo e Gas S.A. (Schahin P&G), the oil and gas arm of
Brazilian-based Schahin Group (Schahin), is the operator of the vessel and
primary sponsor of the transaction. Charter collections include rights to
residual cash flows (dividends) released by the owner of the Cerrado vessel,
which is a Schahin-operated rig of the same design as Sertao.
Fitch's rating addresses the timely payment of interest on a semiannual basis
and the ultimate payment of principal by legal final maturity.
KEY RATING DRIVERS
The rating affirmation reflects the following key rating drivers:
Positive Supply and Demand Fundamentals: 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 value of these assets.
Credit Quality of the Offtaker: Fitch's view of the offtaker's credit quality
is the implied rating cap for a drilling rig transaction in which the offtaker
is the main source of cash flow generation. Petrobras carries local currency
(LC) and foreign currency (FC) Issuer Default Ratings (IDR) of 'BBB'/Outlook
Stable. The company is controlled by the federal government of Brazil and has
the rights to exploration and production (E&P) of the vast majority of
Brazil's oil fields.
Strong Operating Performances: Sertao operated at 94.6% uptime in 2013 in line
with Fitch's expectations for long-term performance and exceeding Fitch's
expectations for performance during the ramp-up period. Last year, Sertao's
daily operating expenses (OPEX) averaged $116,715, below projected expenses
during the rig's first five years of operation. Cerrado operated at 95.9%
uptime in 2013. Schahin shows a consistently high uptime performance on its
overall rig portfolio.
Adequate Leverage and Liquidity: On a net senior debt basis, Fitch's adjusted
valuation of Sertao indicated an initial loan-to-value (LTV) ratio of 68%;
this figure has started to decrease as the transaction de-levers. The senior
semiannual debt service coverage ratio (DSCR), considering charter agreement
revenues (excluding Cerrado dividends) net of transaction fees and OPEX,
divided by debt service for the semiannual period, averaged 1.64x over the
last two periods. In addition, the transaction benefits from liquidity
reserves covering one semiannual principal and interest payment and three
months of OPEX.
Operator Credit Quality: The main sponsor of this transaction, Schahin P&G, is
a sister company of Schahin Oil & Gas Ltd (Schahin O&G) ('BB-/Negative'). On
Jan. 24, 2014 Fitch affirmed the rating of Schahin O&G at 'BB-' and revised
the Outlook to Negative from Stable. Fitch believes the 'BBB-' rating assigned
to the structured financing continues to be supported by the transaction's
current leverage and strong performance metrics, the current secondary market
for similar vessels, and the ample supply of qualified replacement operators
should Schahin need to be replaced.
The transaction rating is sensitive to changes in the credit quality of
Petrobras as offtaker. The FC IDR assigned to Petrobras acts as the implied
cap to the rating of this transaction as Petrobras is the offtaker and main
source of cash flow generation. In addition, the rating is sensitive to the
operating performance of the rigs. Extended periods of downtime that lead to
the revision of Fitch's uptime assumption of 95%, would result in lower DSCR
expectations and potentially result in rating downgrades. Finally, the
transaction rating may be sensitive to a significant deterioration of the
credit quality of Schahin that may affect its ability to service and maintain
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'Criteria for Rating Oil Vessel-Backed Financing in Latin America' (Jan. 14,
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Criteria for Rating Oil Vessel-Backed Financing in Latin America
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Gregory Lane, +1-312-606-2304
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Cinthya Ortega, +1-312-606-2373
Greg Kabance, +1-312-368-2052
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
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