News Column

Fitch Affirms QGOG Atlantic/Alaskan Rigs Ltd. Senior Secured Notes at 'BBB-'

July 14, 2014

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following senior secured notes issued by QGOG Atlantic/Alaskan Rigs Ltd.:

-- $700 million senior secured notes at 'BBB-'; Outlook Stable.

The notes are backed by the flows related to the charter agreements signed with Petroleo Brasileiro (Petrobras) for the use of the moored semi-submersibles Atlantic Star and Alaskan Star. Queiroz Galvao Oleo e Gas S.A. (QGOG), the oil and gas arm of Brazilian-based Queiroz Galvao group, is the operator of the vessels and primary sponsor of the transaction.

KEY RATING DRIVERS

The rating affirmation reflects (i) positive industry dynamics and Petrobras' credit quality in its role as ultimate offtaker of the rigs; (ii) the good uptime performance of both Atlantic Star and Alaskan Star; (iii) debt service coverage ratios (DSCR) in line with Fitch's initial expectations, and (vi) current liquidity protections and the continued de-leveraging of the transaction that contribute to a decreasing net loan-to-value (LTV) ratio.

On March 26, 2014, Fitch affirmed Foreign Currency (FC) and Local Currency (LC) Issuer Default Ratings (IDR) of Petrobras at 'BBB'; Outlook Stable, due to its leadership position in the Brazilian domestic energy market, its recognized expertise in offshore exploration and production (E&P) and its strategic importance to Brazil.

In its credit analysis, Fitch considers the strategic importance and the stability of the Brazilian oil and gas industry, which is evidenced by Petrobras' robust investment plans. Fitch affirmed Brazil's FC and LC IDRs last July 10, 2014 at 'BBB'; Outlook Stable.

Performance of the Atlantic Star and Alaskan Star has been stable during the last year, as both rigs are posting uptimes at or above their historical averages. Monthly uptime for the Atlantic Star averaged 98.91% over the twelve month period through Mar 2014, higher than the 91.9% observed during the last annual revision. The monthly uptime for the Alaskan Star averaged 99.78% over the same twelve month period ending in March 2014, in line with the 99.75% observed during the last revision.

This strong uptime performance contributes to collection levels that adequately cover semiannual debt service payments. The Fitch-adjusted semi-annual DSCR, which includes revenues from both charter and services agreements as well as total operating expenses (opex), averaged 1.31x during 2013 (Average 2012: 1.18x).

Fitch expects rig performance, and consequently collections and DSCRs, during 2014 to be in line with 2013 results. According to QGOG, no significant downtimes are expected in the short/medium term.

In addition, the transaction benefits from liquidity mechanisms to cover 12 months of non-cash generation. The current balance of the Debt Service Reserve Account is US$64.6 million, equivalent to one semi-annual principal and interest payment, plus the ability to defer one principal amortization during the life of the transaction. Additionally, the transaction includes an O&M Reserve Account equivalent to US$10.8 million to cover up to three months of operating expenses. Reserve account funds are in the form of Letters of Credit provided by Citibank (rated 'A'; Outlook Stable by Fitch).

RATING SENSITIVITIES

The transaction's rating may be sensitive to movements in the credit quality of Petrobras and the operating performances of the Atlantic Star and Alaskan Star.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:

--Global Structured Finance Rating Criteria (Jun, 2014);

--Criteria for Rating Oil Vessel-Backed Financing in Latin America (Jan, 2014);

--QGOG Atlantic/Alaskan Rigs Ltd. (July 29, 2011).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria -- Effective 4 August 2011 to 6 June 2012

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646569

Criteria for Rating Oil Vessel-Backed Financing in Latin America

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=728818

QGOG Atlantic/Alaskan Rigs Ltd.

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648231

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=839401

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Andres de la Cuesta, +1 312-606-2330

Associate Director

Fitch Ratings, Inc.

70 West Madison Street

Chicago, IL 60602

or

Secondary Analyst

Cinthya Ortega, +1 312-606-2373

Director

or

Committee Chairperson

Greg Kabance, +1 312-368-2052

Managing Director

or

Media Relations:

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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