Fitch Affirms CE Oaxaca Cuatro, S. de R.L. de C.V.'s Senior Secured Notes at
MONTERREY, Mexico -- June 2, 2014
Fitch Ratings affirms the 'BBB-' rating on CE Oaxaca Cuatro, S. de R.L. de
C.V.'s (Oaxaca IV) USD150.2 million (USD145.7 million outstanding) senior
secured notes due 2031. The Rating Outlook remains Stable.
The rating affirmation reflects the project's operational and financial
performances between Fitch's base and rating case expectations for 2013, due
to lower wind supply, and a satisfactory 2014 to date. The Stable Outlook
incorporates the view that cash flows are to remain solid, supported by a
fixed-price contract with investment grade counterparty.
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 project's operation and maintenance are provided
by sponsor Acciona Energia Mexico, S. de R.L. de C.V. (AEM), Fitch considers
that there are heightened incentives for the sponsor to assure the facility's
operational continuity. (Operation Risk: Midrange)
--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. (Revenue Risk - Volume:
--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+'/Stable Outlook). (Revenue Risk -
--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. (Debt Structure: Midrange)
--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.
(Debt Service: Midrange)
--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, i.e. 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 USD66.7 per megawatt hour (MWh) in 2014, which
increases annually up to USD108.7/MWh in 2031 and is partially readjusted by
the U.S. Producer Price Index.
2013 observed performance was under Fitch's base case expectations, mainly due
to averse climatic conditions that affected not only this project, but most of
the region's. Nonetheless, performance was above rating case scenario.
Although wind capacity factor below the forecast (44.91% versus 49.74%)
resulted in revenues 10% lower than Fitch's base projection, rigid cost
control and turbine average availability above the expectation (99.10% versus
96.00%) contributed to keep cash available for debt service close to what was
Total expense was USD2.8 million, compared to the USD3 million budget and cash
available for the debt service of the year reached USD23.4 million, resulting
in a 1.51x natural coverage against the 1.58x projection. This ratio was
calculated based on the information of the 'DSCR Calculation Certificate'
provided by the company pursuit to the Indenture.
As of the first quarter of 2014, operational figures have recovered and
surpassed Fitch's original base case. Three-month (January-March) average was
98.16% versus 96.00% for turbine availability, and 57.04% versus 49.74% for
plant capacity factor. This stemmed in a 127,141 MWh production, over the
111,113 MWh estimated.
Starting in 2014, the turbine maintenance expense is 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 USD5.6 million for the debt service
reserve account and USD3.2 million for the O&M account, in line with the
established target balances. Worth to mention, the last was mostly funded with
the project's own resources.
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 one
to 15 and 12.5% for years 16 to 20, and 3% net generation reduction to all
years. The results were DSCR of 1.33x minimum and 1.35x average. LLCR is
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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