Fitch Ratings has assigned expected ratings of 'AA+(EXP)' to
The Rating Outlook is Stable.
RATING RATIONALE
The rating reflects a transaction supported by a
As the guaranty is denoted in USD and the notes are denominated in Brazilian Reais (BRL) the guaranty buffer may reduce in case of appreciation of the BRL. Even though the guaranty may not cover the full payment of principal under all circumstances (full wrap), it prevents default in most macroeconomic scenarios that are consistent with the assigned rating, denoting expectations of very low default risk. The notes will be senior secured, fully amortizing and fixed rate.
KEY RATING DRIVERS
Payment Source from End-User [Revenue Risk: Midrange]
The public-private partnership (PPP) agreement with the Municipality of
Low Operational Risk [Operational Risk: Midrange]
Operational risk is fairly mitigated by the simple nature of works to operate and maintain the public lighting system of the city of RJ. The project will be operated and maintained by several experienced operators in the area, which, according to
Adequate Plan for the
Main works for the project are expected to occur in the first two years of the concession, and are heavily concentrated on the exchange of the LED bulbs of RJ street lighting. Main maintenance works are embedded in the O&M contracts. The main risk for the project is technology obsolescence, as the PPP contract requires the project to upgrade certain IT equipment and systems of the Control Center at their own cost. The works in the Control Center are expected to be made in 2026 and 2031, with the project's cashflow.
DFC Guarantee Enhances Debt Structure [Debt Structure: Stronger]
The debt structure will benefit from a guaranty provided by DFC, that covers principal and interest to prevent the notes' default. The guaranty will be capped at
Financial Profile
The maximum guaranteed amount will be fixed until March of 2026 and after that, it will be reduced by an amount in
Fitch ran base and rating cases to evaluate the credit quality of the underlying project. Under the rating case, the minimum and average DSCRs are 1.07x and 1.10x (2023-2031), respectively. Management expects to perform some technology upgrades for the data processing and IT equipment and refurbishment and upgrade of systems of the Control Center in 2026 and 2031. Those investments are not contractually defined, and depending on the rate of technological advance, could ultimately affect the debt service coverage ratios (DSCRs) once the project is exposed to this risk. The revenue structure, which depends on fluctuating COSIP collections, potential technology investments and tight metrics in the rating case, lead the underlying credit quality of the project, without the guarantee, to be consistent with a 'B' category rating.
PEER GROUP
Smart Luz presents stronger protection to investors, as the notes are not indexed to inflation but are fixed rate. Also, scenarios under which
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Any change in Fitch's view of the credit quality of the DFC counterparty could result in the notes being downgraded.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Unlikely given the transaction's debt structure.
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
TRANSACTION SUMMARY
Rated notes will be issued by an offshore SPV, and will be BRL denominated. The notes will include a guarantee from DFC at an expected maximum amount of
FINANCIAL ANALYSIS
The rating also considers the project's current phase of investments, where revenue increases are linked to the achievement of certain milestones related to relatively simple works - the modernization and efficiency of street lighting points and pole replacements. The revenues are dependent on the Contribuicao para Custeio do Servico de Iluminacao Publica (COSIP) collections that are done by
Operations and maintenance are considered to be low complexity, with sufficient predictability and some exposure to lifecycle investments to upgrade the technology.
Fitch Cases
Fitch's cases were run for the purpose of evaluating the underlying credit risk of the asset. For the assumptions, Fitch used the macroeconomic assumptions detailed in Fitch's 'Global Economic Outlook' report, published in
The minimum and average DSCRs for the base case are 1.24x and 1.26x, respectively. In Fitch's rating case, the minimum and average DSCRs are 1.07x and 1.10x, respectively.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The ratings reflect the guaranty provided by
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.RATING ACTIONSENTITY/DEBT RATINGRio Smart Lighting S .ar.l.
LT AA+ New Rating
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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