(The following statement was released by the rating agency)
Jan 10 -
Summary analysis -- Exeltium S.A.S. ------------------------------- 10-Jan-2013
CREDIT RATING: None. Please see issue list. Country: France
Primary SIC: Special Purpose
The long-term ‘BBB-’ rating on the EUR1.58 billion senior secured bank loan due 2019, raised by Exeltium, reflects a composite of credit factors outlined below:
The ‘BBB-’ rating reflects the following credit risks:
-- Exposure to counterparty risk. Currently, exposure to speculative-grade offtakers has increased to 32%, an increase from approximately 15% six months ago. Despite this increase in the revenue counterparty risk, it does not yet constrain the projects current rating according to our counterparty methodology (See Related Research below). Furthermore, counterparties are required to post an increased level of collateral if their credit quality deteriorates.
-- The offtakers’ ability to break their power contracts with Exeltium at preset windows in years 10, 15, and 20. Such breaks would, in all likelihood, be driven by the strike price (fixed price) for power being higher than the market price, meaning that the project had become uneconomic.
-- The credit quality of the put option provider has deteriorated, triggering a lock up of discounts. If not resolved, this may prompt offtakers to opt out, increasing Exeltium’s exposure to the put option provider’s credit quality, which is currently speculative grade. Should a lock up continue, we believe it could make refinancing Exeltium’s current debts more difficult.
-- An aggressive capital structure, as the significant 60% bullet debt maturity in June 2019 demonstrates. (We calculate the 60% bullet maturity using our base-case forecast and including the cash sweep stream). This maturity creates significant refinancing risk. However, the transaction will have partially amortized the debt at the point of maturity.
-- An aggressive financial profile, typical of project financing, with approximately 80% of senior debt to 20% of equity and subordinated debt. The base-case annual senior debt service coverage ratios (ADSCRs) are a minimum of 1.42x and an average of 1.63x, computed according to Standard and Poor’s definition, which excludes interest income.
-- The relatively weak security package available to lenders. This package does not include the physical power assets themselves.
These risks are offset by the following strengths:
-- Low or minimal operating risk, including power supply risk. Exeltium benefits from a 24-year ‘take-or-pay’ power agreement for 148 terawatt hours (TWh), split into seven blocks. EDF is the major electricity provider in France and thus benefits from a diversified production portfolio.
-- The competitive price Exeltium offers, in particular with discounts (although these are now in lock up), of the power transaction compared with the current and projected market electricity prices.
-- Various structural features that are likely to incentivize Exeltium to manage the project to mitigate risks. For example, the project’s covenants include a cash sweep (from year three onward) and margin-increase mechanisms which, in our opinion, provide Exeltium with an incentive to refinance the bank loan prior to its ultimate maturity date.
-- The availability of a put option, signed with a major industrial group, for 51% of volumes that the offtakers may give up from 2020, thereby partially mitigating offtaker risk, although the credit quality of the put option provider has recently led to a lock-up situation.
-- An automatic upstream price decrease from 2020. This protects Exeltium in the event that market prices fall below a certain threshold for the remaining 49% of volumes.
The project benefits from a liquidity facility covering six months of full debt service payments.
In addition, offtakers must post a minimum of four months of cash collateral guaranteeing all obligations to Exeltium. Offtakers must provide additional security according to their creditworthiness (for further details, see section below titled “Offtaker risk”).