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Global Credit Research - 04 Jun 2010
Approximately USD 150 Million in Debt Securities Affected
Buenos Aires, June 04, 2010 -- Moody's has assigned provisional ratings of (P)Ba3 (Global Scale,
Foreign Currency) and (P)Aa1.ar (Argentine National Scale) and
of (P)Ba2 (Global Scale, Local Currency) and (P)Aaa.ar (Argentine
National Scale) to the VDF A and VDF B Notes of Fideicomiso Financiero
Chubut Regalías Hidrocarburíferas I, respectively.
The debt securities will be issued by Banco de Valores S.A.
- acting solely in its capacity as Issuer Trustee.
The notes will be backed primarily by hydrocarbon royalties to be paid
by Pan American Energy LLC, Argentine Branch (PAE), rated
Ba2 (Foreign Currency) and Ba1 (Local Currency). PAE has been awarded
the production concession for certain areas in the Province of Chubut,
in accordance with the Argentine Hydrocarbon Law and an extraction agreement.
The rated securities will be obligations of the Fideicomiso Financiero
Chubut Regalías Hidrocarburíferas I, a financial trust
constituted in Argentina under Law 24.441.
Interest and principal on the notes is payable quarterly. Principal
payments will have a grace period of one year. The promise on the
rated notes is to receive timely interest and principal by legal final
maturity, which will occur on July 1, 2020. However,
subject to the availability of funds, targeted payments of principal
will be made on each quarterly payment date beginning on October 3,
2011. If all scheduled principal payments are made on time,
the notes are expected to be paid in full on July 1, 2020.
The VDF B Notes, although denominated in US dollars, will
be payable in Argentine pesos, therefore are considered to be local
currency obligations and not subject to convertibility and transfer risks.
However, the VDF A Notes, which are payable in US dollars,
are subject to foreign currency convertibility and transfer risk.
The royalty payments will be made to a collection account in Argentina;
therefore, Moody's considered the risk that the Argentine
Government could limit the ability of the trustee to exchange the royalty
payment proceeds into US dollars or to transfer the US dollars to the
collection account outside of Argentina, which currently has a foreign
currency country ceiling of B2. The risk to the VDF A Notes is
mitigated by: i) the availability of a liquidity reserve account
in the US covering two quarterly principal and interest payments (or 15
months of interest debt service if bondholders instruct the trustee to
use this reserve for interest payments only) , ii) a mechanism that
allows for the payment-in-kind of royalties, iii)
the Bonex clause, a mechanism available to the trustee to purchase
foreign currency denominate bonds in Argentina to be sold offshore,
in order to make payments to investors in foreign currency and iv) the
relative good performance of similar transactions during 2001-2002's
transferability and convertibility restrictions imposed by the Argentine
Moody's also evaluated the probability of a nationalization of hydrocarbon-related
assets in Argentina. Although this could be a possible scenario,
the probability of occurrence is currently deemed to be low; as such
a policy would likely face a strong opposition from the Argentine Provinces.
Also, the National Constitution establishes that the Provinces are
the original owners of the natural resources, including hydrocarbons,
located within their territorial boundaries. Moody's understands
that a nationalization of the hydrocarbon resources would require an amendment
to the National Constitution.
The sole obligor in this transaction is the designated concessionaire,
Pan American Energy LLC. The current credit quality and rating
level of PAE is consistent with the ratings assigned to the VDF A and
B notes. The Province should appoint a successor concessionaire
if the extraction agreement with PAE is terminated. The successor
concessionaire will have the same obligations to this transaction than
Moody's has evaluated the sufficiency of the estimated oil and gas production
of PAE during the life of the transaction. Moody's has also stressed
the domestic oil and gas prices that are used to calculate the royalties'
payments. Royalties cashflow is robust and consistent with the
ratings assigned to this transaction. Moody's notes that while
the production is concentrated in Cerro Dragón, the area
does consist of many different fields that are in various states of exploitation
maturity. PAE has an sound track record as an operator in the Cerro
The notes will be a direct obligation of the issuing trust; therefore
there is no obligation or recourse to the assets of the Province of Chubut,
except for the assigned royalties. Since the sale of the royalties
will be characterized as a true sale under Argentine Law, the creditors
of the Province, or the Province itself, will have no rights
to the assigned royalties. However, if the credit conditions
of the Province deteriorate, Moody's believes that the risk
that the province would be willing to interfere with the transaction will
increase accordingly. So far, there have been no antecedents
of reversals of royalty assignments to issuing or guaranty trusts in Argentina.
However, there are some negative precedents in terms of the assignment
of other provincial revenues (i.e. federal tax coparticipation
Moody's built a cash-flow model that reproduced many deal-specific
characteristics. The main assumptions of the model are the oil
and gas estimated production levels (triangular distribution centered
around a mean value of 4.54 million m3 for oil and 2,499
million m3 for gas), the oil and gas estimated domestic prices (triangular
distribution centered around a mean value of USD32/bbl for oil and USD70/thousand
of m3 for gas), and the royalties percentage to be paid by PAE (12%
in most scenarios).
Royalty payments are made in Argentine pesos and the rated notes are either
payable in US dollars (VDF A) or in Argentine pesos but linked to the
US dollar (VDF B). In both cases a devaluation of the Argentine
peso may reduce the amount of US dollars available to repay the VDF.
Domestic hydrocarbon prices were stressed to evaluate the sufficiency
of the cashflows under higher stress scenarios. For example,
the transaction can withstand a drop of 60% in the price of oil
and gas from our base case of USD 32/bbl and still pay on a timely basis.
For more information on this transaction, please refer to the Pre
Sale Report to be published in moodys.com. In addition,
Moody's publishes a weekly summary of structured finance credit,
ratings and methodologies, available to all registered users of
our website, at www.moodys.com/SFQuickCheck.
Originator: Province of Chubut
VDF A Fixed Rate Debt Securities of "Fideicomiso Financiero Chubut Regalías
Hidrocarburíferas I", rated (P)Aa1.ar (Argentine National
Scale) and (P)Ba3 (Global Scale, Foreign Currency)
VDF B Fixed Rate Debt Securities of "Fideicomiso Financiero Chubut Regalías
Hidrocarburíferas I", rated (P)Aaa.ar (Argentine National
Scale) and (P)Ba2 (Global Scale, Local Currency)
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's Rates Fideicomiso Financiero Chubut Regalías Hidrocarburíferas I, an oil and gas royalties securitization in Argentina
Martin Fernandez Romero
Vice President - Senior Analyst
Structured Finance Group
No Related Data.
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