MV24 Capital B.V.'s Proposed $1.1 Billion Senior Secured Notes Rated Preliminary 'BB', Outlook Stable

  • MV24 Capital B.V. (MV24 or the project), expects to issue up to $1.1 billion in senior secured notes due June 2034.
  • On July 18, 2019, S&P Global Ratings assigned its preliminary 'BB' issue-level rating to the proposed notes. We also assigned a recovery rating of '2' to the notes.
  • The rating incorporates the loan MV24 provided to Cernambi Sul MV24 B.V. (Cernambi), which is the underlying asset, owner of an oil vessel, supporting the repayment of the notes. We also view Cernambi as part of the project. The project expects to use the proceeds to refinance Cernambi's construction debt.
  • The stable outlook reflects our expectation that the project will operate with a minimum 96% average availability in the next 24 months, including seven days of maintenance stoppage per year, leading to a debt service coverage ratio (DSCR) of about 1.25x.
SAO PAULO (S&P Global Ratings) July 18, 2019—S&P Global Ratings took rating 
actions described above. The preliminary rating mainly reflects the contracted 
nature of the asset, which results in very stable and predictable cash flows. 
The preliminary rating is one notch above the credit quality of the of the 
weakest of the revenue counterparties, because we believe that there are 
economic incentives to the owners of the oil field to continue the oil 
production, even under financial distress conditions. This reflects our view 
of the essential service the project provides to the oil production, which 
generates cash flows to the owners of Tupi, combined with the asset's unique 
characteristics that was tailor-made to operate in the Lula-Iracema field, 
i.e. it's an asset not practically substitutable. The latter is one of 
Petrobras' most important production fields, accounting for about 20% of total 
proven reserves. The field is under the first quartile of its cash-cost, below 
$20 per barrel of oil equivalent (boe).

Therefore, we cap the rating on MV24 at one notch above the rating on 
Petrobras (BB-/Stable/--). Our analysis incorporates also the operational risk 
inherent to oil production, limited to activities of light process and oil 
storage, i.e. excluding activities of subsea wellhead; the benefit of a 
long-term, availability-based charter agreement that eliminates market risk, 
and the operator's experience that has been able to maintain a 97.5% average 
availability of the asset since it started operations in October 2014. 

Our base-case scenario, which assumes 96% average availability and the prices 
included in the charter agreement, results in a minimum annual DSCR of 1.17x 
in 2030 and an average DSCR of 1.22x throughout the notes' term. In our view, 
project's resilience under a downside-case scenario supports MV24's strength, 
given its low exposure to price variations due to its availability-based 
payments. 

Finally, the rating is higher than that on Brazil given that we believe the 
project would be able to pass a sovereign stress scenario. This is principally 
due to the exporting nature of the asset, the smooth debt payments, and 
existence of debt reserve accounts. Even though the vessel operates in Brazil, 
the charter agreement defines that payments are deposited in offshore 
accounts, all cash is held offshore, and revenue and costs are denominated in 
dollars, offsetting the foreign-exchange conversion risk. We didn't apply the 
typical cash haircut, because all cash is held offshore, invested under 
permitted investment-grade titles.

The rating on the notes is preliminary and the assignment of the final rating 
will depend on our receipt and satisfactory review of all final transaction 
documentation, while the interest rate on the notes would need to be in line 
with our expectations. Accordingly, the preliminary rating shouldn't be 
construed as evidence of the final rating. If we don't receive the final 
documentation within a reasonable timeframe, or if the final transaction 
departs from our assumptions, we reserve the right to withdraw or change the 
rating.

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