Fitch expects to rate Yinson Boronia Production B.V.'s senior secured notes as follows.

$1.035 billion Senior Secured Notes 'BB+'; Outlook Stable;

RATING ACTIONS

Entity / Debt

Rating

Yinson Boronia Production B.V.

Yinson Boronia Production Senior Secured Notes

LT

BB+(EXP)

Expected Rating

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VIEW ADDITIONAL RATING DETAILS

Transaction Summary

Fitch expects the proceeds of this transaction to be used to refinance the original funding of the floating-production storage and offloading (FPSO) unit, Anna Nery, which operates in the Marlim Field in the post-salt layer of the Campos Basin, off Brazil. The transaction is backed by a first-priority mortgage on the vessel and cash flows from the underlying charter agreement between Yinson Boronia Production B.V. (SPV), as owner and issuer, and Petroleo Brasileiro S.A. (Petrobras, BB/Stable), as offtaker. The agreement is in place until April 2048.

Additionally, Fitch expects that within 60 days of repayment of the original debt the issuer will release the liens on the collateral securing the existing obligations and perfect the collateral of this transaction's notes. This timeline can be further extended by an additional 60 days if the issuer injects equity into the transaction in an amount equal to the first interest payment.

The first interest payment (first principal payment is due in January 2025) on the notes will occur in July 2024 in order to align Yinson's fiscal year end in January with semi-annual principal and interest payments on the notes. In case the collateral is not released and perfected within 60 days, either equity or note proceeds will be used to make this payment. The financial structure considers a fully amortizing transaction. Fitch's rating addresses the timely payment of interest and timely payment of principal on a semiannual basis until legal final maturity in July 2042.

KEY RATING DRIVERS

Offtaker Obligation Strength Exceeds Petrobras' IDR: The offtaking party in the charter agreement is Petrobras, the state-owned oil company of Brazil. Fitch rates Petrobras in line with the Brazilian sovereign (BB/Stable). The charter contract between the operator and an offtaker of an FPSO is considered to be a strategic long-term contract to produce hydrocarbons in a specific area, as FPSOs are built to suit. The contract's long-term nature (25 years), the low cost against cash flow generation, and the complexity of the vessel make the contract and use of the vessel highly strategic to Petrobras.

Even under distressed environments, these contracts and obligations are likely to be honored and can be differentiated from other corporate debt obligations. The charter contract may be considered an operational/net revenue cost to Petrobras to continue business operations and produces low break-even cash flow generation. For these reasons, Fitch determines the strength of the offtaker's payment obligation to be one-notch above Petrobras's credit quality at 'BB+'.

Sovereign Event Risk; Transfer and Convertibility (T&C) Mitigated: The transaction's reserve account of six months of debt service and offshore payment obligations offer sufficient protection to mitigate potential transfer and convertibility (T&C) restrictions and exceed Brazil's Country Ceiling of 'BB+' by one notch.

However, event risk is linked to the operating environment, with Petrobras as a state-owned enterprise, potentially subject to political interference, limiting the uplift over Brazil's Long-Term IDR to two notches, and therefore 'BBB-'. The transaction's limiting factor is Fitch's assessment of the strength of the offtaker's payment obligation, which is assessed at 'BB+'.

Experienced Operator Mitigates Risk: The operator, Yinson Production, is a global player in building and managing FPSOs and operates in Brazil, Ghana, Vietnam, Nigeria, and Malaysia. Yinson entered the Brazil market four years ago and has two vessels contracted to come online in the next several years. A bankruptcy of Yinson could expose the transaction to a potential termination of the underlying charter and services agreement. Fitch assesses Yinson's credit quality to be near investment grade and as a result, Yinson does not limit the transaction's rating.

Strong Financial Metrics: Fitch's cash flow analysis has assessed the repayment of the fully amortizing debt, assuming timely interest and principal payments under a nondeferrable sculpted amortization schedule and a cash trapping condition should the debt service coverage ratio (DSCR) fall below 1.15x. Fitch's base case expects the DSCR to be between 1.26x-1.28x, which is in line with investment grade metrics and does not pose a constraint to the transaction's rating. At the 'BB' stress case it drops to 1.10x-1.16x, which remains sufficient for to support the rating.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

As described in Key Rating Drivers, the rating of the transaction is linked to Petrobras' IDR, with an uplift of one notch. Therefore, a Petrobras downgrade could trigger a downgrade of the notes. Both ratings are on a Stable Outlook.

The other counterparty that could constrain the rating is the operator, whose credit quality is assessed to be near investment grade and as a result, does not limit the rating but could pose a constraint should the credit quality deteriorate.

Finally, the cash flow analysis results in a sufficient output, consistent with ratings in the 'BBB' category and does not currently pose a constraint to the transaction rating. Although the DSCR and ultimate debt repayment depend on uptime, maintenance days, opex and CPI, none of these variables is likely to materially affect the rating under Fitch's stress case.

Any changes in these variables will be analyzed in a rating committee to assess the possible impact on the transaction rating.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

The rating is influenced by transaction counterparties, the operating environment and credit metrics. An upgrade of Brazil (which would likely also result in an upgrade of Petrobras) or an upgrade of the operator may result in an upgrade of the transaction rating. However, Fitch does not anticipate such as scenario as the rating is on a Stable Outlook.

CRITERIA VARIATION

The rating assigned is one notch above the offtaker's IDR. According to 'Oil Vessel-Backed Financing Rating Criteria' when determining the strength of the offtaker's payment obligation for sole-offtaker, the strength of the offtaker's obligation is typically equalized or notched down from the offtaker's IDR.

However, in this case, we consider the strategic importance of the charter contract to Petrobras and very favorable economics when determining the strength of the obligation. For this transaction, Fitch believes the strength of the offtaker's payment obligation is equivalent to one notch above Petrobras' IDR and equivalent to a 'BB+', as such this is treated as a criteria variation.

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.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool was not prepared for this transaction. Offering Documents for this market sector typically do not include RW&Es that are available to investors and that relate to the asset pool underlying the trust. Therefore, Fitch credit reports for this market sector will not typically include descriptions of RW&Es. For further information, please see Fitch's Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.

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