Fitch Ratings has affirmed SBM Baleia Azul, SII/ S.a.r.l.'s series 2012-1 senior secured notes due 2027 at 'BB-'.

The Rating Outlook has been revised to Stable from Negative due to Fitch's review of transaction performance amidst vessel shutdown and the alignment of the outlook with the off-taker, Petrobras. The transaction's rating is capped by Fitch's view of the strength of the offtaker's payment obligation, which in this case is equalized with Petrobras' Issuer Default Rating (IDR).

RATING ACTIONS

Entity / Debt

Rating

Prior

SBM Baleia Azul, SII/ S.a.r.l.

Senior L8038*AA4

LT

BB-

Affirmed

BB-

Page

of 1

VIEW ADDITIONAL RATING DETAILS

Transaction Summary

The notes are backed by the flows related to the charter agreement signed with Petrobras for the use of the Cidade de Anchieta floating production storage and offloading unit (FPSO) for a term of 18 years. SBM do Brasil Ltda. (SBM Brasil), the Brazilian subsidiary of SBM Holding Inc. S.A. (SBM), is the operator of the FPSO. SBM is the sponsor of the transaction. The Cidade de Anchieta FPSO began operating at the Baleia Azul oil field (now considered part of the New Jubarte field) in September 2012.

KEY RATING DRIVERS

PETROBRAS' CREDIT QUALITY AS CONSTRAINT

Fitch uses the offtaker's IDR as the starting point to determine the appropriate strength of the offtaker's payment obligation. On July 18, 2022, Fitch affirmed Petrobras' Long-Term (LT) IDR at 'BB-' and revised the Outlook to Stable. Petrobras' ratings continue to reflect its close linkage with the sovereign rating of Brazil and the outlook reflects the better-than-expected evolution of public finances amid successive shocks in recent years since May 2020.

STRENGTH OF THE OFFTAKER'S PAYMENT OBLIGATION ALIGNED WITH PETROBRAS' IDR

Fitch's view on the strength of the off-taker's payment obligation acts as the ultimate rating cap to the transaction. Given Fitch's qualitative assessment of asset/contract/operator characteristics and the off-taker's/industry's characteristics related to this transaction, the strength of such payment obligation has been equalized to Petrobras' LT IDR.

EXPERIENCED OPERATOR MITIGATES RISK

SBM Offshore N.V. is the ultimate parent to SBM Holding Inc. S.A., the main sponsor of the transaction. The transaction benefits from SBM Offshore N.V.'s solid business position, global leadership in leasing FPSOs and overall strong operational performance of its fleet, aligning SBM's credit quality with investment-grade metrics. The rating of the transaction is ultimately capped by Fitch's view of the credit quality of the sponsor.

TRANSACTION CONTINUES TO MEET PAYMENT OBLIGATIONS AMIDST SHUTDOWN

The company, SBM, has been supporting the transaction structure since vessel shut down in January 2022 due to an oil leak detected stemming from a corroded tanker. A shareholder loan has been in place between SBM Holding Inc. (Lender) and SBM Baleia Azul, SII/ S.A.R.L (Borrower) to help support the transaction's timely payment obligations as necessary. The focus of activities to date has been on the repair of the four tanks required for the safe restart of the vessel and is on schedule to resume operations by the end of 2022.

As a result of the shutdown, the overall uptime average since commercial operations began in 2012 has declined to 91.2%, down from 97.9% prior to the shutdown.

AVAILABLE LIQUIDITY REDUCES RISK

The transaction benefits from a $26 million (LoCs provided by ABN Amro, rated A/Stable) debt service reserve account (DSRA) equivalent to the following two quarterly payments of principal and interest. This provides support to meet the next debt service obligations should the vessel be delayed in coming back online and resuming the charter and SBM ceasing to provide liquidity to the transaction. From Fitch's understanding, the company and Petrobras have been working to resume vessel operations in a timely and safe manner before year-end 2022.

DSCR CONTINUES TO MEET EXPECTATIONS GIVEN SBM SUPPORT

The key leverage metric for fully amortizing FPSO transactions is the DSCR. The rolling 12-month pre-opex debt service coverage ratio (DSCR) for the period ending September 2022 was 1.70x. Through the shareholder loan, SBM Baleia Azul, SII/ S.a.r.l received $11 million in June 2022, $18.5 million in September 2022, and is expected to receive $18.7 million in December 2022 to assist with meeting timely interest and principal and to assist with cost/expenses incurred while repairing the vessel. Since the vessel is currently not receiving any charter revenue from normal operations, SBM's support is instrumental for the DSCRs to remain above trigger levels.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

The rating may be sensitive to changes in Petrobras' credit quality as charter off-taker, and any deterioration in SBM's credit quality as operator and sponsor. In addition, the transaction's rating may be impacted by the Cidade de Anchieta FPSO's operating performance and prolonged shut down of the vessel that could lead to a contract termination.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Fitch does not anticipate developments that could likely trigger an upgrade. However, the main constraint to the transaction's rating is currently the offtaker's credit quality. If upgraded, Fitch will consider whether the strength of the offtaker's payment obligation would be equalized with the entity's IDR.

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.

DATA ADEQUACY

The principal sources of information used in the analysis are described in the Applicable Criteria.

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.

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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