Fitch Ratings has affirmed the long-term series 2014-1, 2014-3 and 2018-1 notes issued by
The Rating Outlook is Stable.
The ratings are not directly linked to the originator's credit quality. The ratings are based on potential production and generation risk and are ultimately linked to
The assigned ratings address timely payment of interest and timely payment of principal on a quarterly basis.
RATING ACTIONS
Entity / Debt
Rating
Prior
2014-1 76716XAA0
LT
BB-
Affirmed
BB-
2014-1 REGS USU76673AA72
LT
BB-
Affirmed
BB-
2014-3 76716XAB8
LT
BB-
Affirmed
BB-
2014-3 regs USU76673AB55
LT
BB-
Affirmed
BB-
2018-1 76716XAC6
LT
BB-
Affirmed
BB-
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VIEW ADDITIONAL RATING DETAILS
Transaction Summary
The notes issued by
KEY RATING DRIVERS
Ratings Not Directly Linked to Originator's: RP is an autonomous government agency that is part of the Secretary of State for Planning and Management of RJS (BB-/Stable). Performance of the originator will not affect the collateral as the generation of the cash flow needed to meet timely debt service is not dependent on either RP or RJS.
Largest Obligor Rating Cap:
Future Production Risk: The transaction benefits from growth in production levels as it increases the total royalty flows. Depressed oil prices have led
Cash Flows Support Rating: The expected levels of annualized average debt service coverage ratios (AADSCRs) over 2.0x partially mitigate the transaction's exposure to fluctuations in oil prices and production levels at the current rating level. Fitch expects AADSCRs to be over 2.0x for the life of the transaction, assuming Law 12,734 is implemented after 2020.
Oil Revenues Dedicated Account Modification Mitigates Redirection Risk: Pursuant to the Oil Revenues Dedicated Account Modification Legislation, the RioPrevi Oil Revenues initially deposited to the RJS Oil Revenues Dedicated Account are no longer required by legislation to be deposited into a state-owned account. Oil revenues assigned to this transaction are instead deposited into an account under the name of the issuer. This change in the account mitigates potential redirection of flows to RJS. As
Ample Liquidity for Timely Payment: The transaction benefits from liquidity, in the form of a Debt Service Reserve Account (DSRA) and a Liquidity Reserve Account. Funds in deposit in these two accounts shall at all times be sufficient cover three principal and interest (P&I) payments, which is considered sufficient to keep debt service current on the notes under different stress scenarios.
Potential Exposure Political Risk Partially Mitigated: The state's liquidity constraints, evidenced by various delays in commercial and other payments, have heightened the transactions political risk exposure. However, provisions included in the sixth rescission waiver and amendment, such as the rescission of the trapping of excess cash and of the early amortization period, will increase the cash flows returned to the state, and, in turn, decrease the transaction's exposure to potential political risk.
Legal Changes May Affect Collateral Stability: Although, to date, no amendments affecting the distribution of royalties for the existing concession Regime have been implemented, provisions regarding the change in allocation percentages incorporated in Law 12,734 are currently under review. The transaction was analyzed assuming the law will change and DSCRs remain sufficiently robust and commensurate with the expected ratings.
True Sale Valid under Brazilian Law: Collateral backing this transaction was transferred to RP by RJS through a state decree, making RP the legal owner of the royalties. This transfer gives RP the right to sell the collateral into the trust.
Transfer and Convertibility Risk: Series 2014-1, 2014-3 and 2018-1 notes are exposed to transfer and convertibility risk as royalty flows are paid in an account in Brazilian reais. This exposure caps the rating of the transaction at the country ceiling of
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The transaction is exposed to oil price and production volume risks. Sustained low prices or declines in prices or production levels significantly below expectations may trigger downgrades;
The ratings are capped by the credit quality of
The ratings are sensitive to the rating of BdB given the excessive counterparty exposure to the transaction; therefore, a downgrade of BdB would trigger a downgrade on the notes.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The main constraints to the program rating are the ratings of
In
Best/Worst Case Rating Scenario
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven 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 seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
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 future flow ratings are ultimately capped by the credit risk of
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.
Additional information is available on www.fitchratings.com
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