Fitch Publishes New Criteria for Rating Oil Vessel-Backed Financing in LatAm

Fitch Ratings has published a sector-specific criteria report describing its approach to rating transactions backed by long-term charter and/or services agreements related to offshore vessels used in different stages of the oil exploration and production (E&P) chain in Latin America.

'Fitch believes this report will be useful for the regional marketplace given investment in offshore production in Brazil and political commitment to offshore waters development in Mexico,' said Cinthya Ortega, Director at Fitch Ratings.

Fitch rated the first transaction of this kind in 2010 and has published numerous issuance-specific and special reports on its website.

The new criteria report outlines the qualitative and quantitative factors relevant to analyzing oil vessel-backed financings. Offshore vessels include drilling rigs, Floating-Production Storage and Offloading (FPSO) units, and shuttle tankers, among others.

Since contracts backing these transactions are the main source of cash flow generation, the offtaker's credit rating acts as a cap to the transaction rating, with few exceptions, according to 'Criteria for Rating Oil Vessel-Backed Financing in Latin America,' now available at 'www.fitchratings.com' or by clicking on the link.

Ratings assigned to these transactions in Latin America have generally been capped in the 'BBB' category. While some of this has been driven by offtaker credit quality and overall leverage, the main factors that influence this cap are operating risks associated with the asset, potential technology risk, and exposure of the asset value to long-term oil prices.

Additionally, the charter and/or services agreements backing these transactions typically contain termination clauses related to the bankruptcy of the operator/sponsor. The degree of linkage between the transaction's rating and the credit quality of the operator or sponsor is determined on a case by case basis, as a function of (i) the asset type, (ii) the local supply and demand fundamentals, (iii) the attractiveness of the asset to the offtaker, (iv) contract characteristics, (v) available liquidity, and (vi) leverage and debt service coverage metrics.

Transaction ratings ultimately reflect the structural features designed to mitigate performance risks, completion risk, refinancing risk, and the potential for sale or relocation of the assets in the event of contract termination. Any exposure to other counterparties and legal analysis are incorporated into the analysis and reflected in the final rating.

'Criteria for Rating Oil Vessel Backed Financing in LatAm' should be read in conjunction with Fitch's master criteria 'Global Structured Finance Rating Criteria', dated May 2013, which details Fitch's overarching approach to rating structured finance transactions.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

-- 'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013)

-- 'Global Structured Finance Rating Criteria' (May 24, 2013);

-- 'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' (June 12, 2013).

Applicable Criteria and Related Research: Criteria for Rating Oil Vessel-Backed Financing in Latin America

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

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709840

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707155

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Fitch Ratings
Greg Kabance, [phone]
Managing Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Cinthya Ortega, [phone]
Director
or
Bernardo Costa, [phone]
Senior Director
or
Maria Paula Moreno, [phone] ext. 1210
Senior Director
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Media Relations
Elizabeth Fogerty, New York, [phone]
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