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Rating Action:

Moody's assigns Ba1 to Guara Norte's $850 million notes

01 Feb 2021

New York, February 01, 2021 -- Moody's Investors Service, ("Moody's") has assigned a first time Ba1 rating to the senior secured notes to be issued by Guara Norte S.a r.l. ("Guara Norte") in the amount of $850 million. The notes will have a 13.5-year term and will amortize in full, with a final maturity in June 2034. The rating outlook is stable.

Proceeds of the issuance will be used to repay approximately $535 million in existing debt, with remaining proceeds being made available to the shareholders.

Guara Norte is a special purpose company established in Luxembourg and is the owner of the floating production storage and offloading (FPSO) unit Cidade de Ilhabela. The Issuer is owned by SBM FPS Holding S.A. (75%) and Mitsubishi Corporation (25%, A2 negative). The vessel has been specifically designed and built to fit the characteristics of the Sapinhoa oil field (previously named Guara) in Brazil (Government of Brazil, Ba2 stable), and is chartered to Petroleo Brasileiro S.A. - PETROBRAS (Ba2 stable) as operator of the oil field and leader of the consortium with 45% ownership, until 2036. Remaining owners are, BG E&P Brasil Ltda. (30%) and Repsol Sinopec Brasil S.A. (25%). The vessel has been operational since 2014. In turn, Petrobras has contracted Guara Norte Operacoes Maritimas Ltda., a company owned by the sponsors, to operate the vessel pursuant to a services agreement.

The assigned rating is based on preliminary documentation. Moody's does not anticipate changes in the main conditions of the notes. Should issuance conditions and/or final documentation deviate from the original ones submitted and reviewed by the rating agency, Moody's will assess the impact that these differences may have on the ratings and act accordingly.

RATINGS RATIONALE

The assigned rating reflects our view of the project's low fundamental risk profile, which is supported by (i) the terms of the charter and services agreements, which provide for a stable and predictable availability-based revenue stream set for a fixed price for a remaining period of fourteen years; (ii) the high weighted average credit quality of the offtake base, given the guarantees provided on a several basis by BG Energy Holdings Ltd. (30%), Repsol S.A. (15%, Baa2 negative), and China Petrochemical Corporation (Sinopec, 10%, A1 stable), in addition to Petrobras International Braspetro B.V. (PIB BV, 45%); (iii) the strong market position of the Cidade de Ilhabela FPSO, as one of the two tailored-made FPSOs operating at the Sapinhoa oil field; and (iv) the strong economics of the oil field as the third largest producing field in Brazil, carrying a pre-tax net present value of US$12 billion and a point-forward breakeven of US$22.7/barrel net of royalties and taxes.

The rating takes into consideration the proven technology and strong historical track record of the Cidade de Ilhabela FPSO, presenting average commercial uptime and planned maintenance day usage of 98.6% and 4.9 days per year up until November 2020, respectively, since starting operations in 2014. Another positive consideration is the strong profile of the sponsors, led by SBM Offshore N.V., a market leader with global presence and long-standing ties with Petrobras. SBM Offshore N.V. and the Mitsubishi Corporation have partnered to develop other FPSOs in the country over the past 10 years, and together currently own three additional FPSOs. The robust operating record of the sponsors' fleet combined with their strategic relationship with Petrobras are credit positives.

The rating also incorporates the lowly levered nature of the transaction, with DSCRs yielding an average 1.77x assuming average historical uptime of 98.6% over the life of the transaction, eight planned maintenance days for 2021 and six planned maintenance days per annum thereafter, and operating expenses set at the capped amount of US$186k/day. The low leverage is further strengthened by the resilience of revenue upon significant stresses to unplanned maintenance and downtime. DSCRs reach 1.0x when uptime is of 65%.

The rating recognizes the short tail between debt maturity, charter agreement expiration, and oil field reserve life, but the protections embedded in the charter agreement and the combination of the robustness of estimations of reserve life and complexities surrounding the setting of oil field production plans are mitigating factors.

In general, FPSOs are specifically designed to suit the characteristics of the oil field requiring investments between US$1.25-2.5 billion to build and two-to-three years lead time. Additionally, their charter accounts for less than 15% of oil field revenues for the oilfield consortium. Those characteristics generate strong economic incentives to the oil field consortium and protects FPSOs against the volatility of oil prices. Furthermore, FPSOs constitute essential infrastructure assets for the successful development and production of oil in Brazil's pre-salt ultradeepwater fields, supporting its strategic importance to production companies and the sovereign.

The Ba1 rating considers various linkages, direct and indirect, with both Brazil and Petrobras in light of its operation in Brazilian waters. Sovereign risks are mitigated by the substantial royalty and tax generation upon normal operation of the oil field and the recognition that all cash flow under the charter agreement is paid and deposited offshore. In addition, the contractual framework substantially mitigates foreign exchange risks, with BRL-services revenues sized to cover onshore expenses. The Ba1 rating balances the asset's strong intrinsic features and the linkages with Petrobras, reflecting the company's important role as operator of the oil field, controlling party in the consortium, and as the principal voice interacting with regulatory authorities. The rating considers the in-principle ability of remaining members of the consortium to replace Petrobras's leading role if needed, but not without execution risks and impinging temporary disruption to normal operations.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

Upward pressure on the ratings could develop over time if Petrobras is upgraded.

Conversely, downward pressure on the ratings could arise if operational performance deteriorates substantially or additional debt is issued such that DSCRs reach below 1.4x, or upon downgrades to the ratings of Petrobras, the charter agreement guarantors, or the Government of Brazil.

DEBT STRUCTURE AND SECURITY

Incorporated in the rating is the fully amortizing nature of the debt structure, which includes a full collateral package typical to project finance transactions, including a mortgage over the asset, assignment of rights over cash balances and cash flows, a six-month DSRA, and a restrictive payments test DSCRs of 1.15x. The transaction waterfall recognizes the one-off annual maintenance day bonus payment and allocates 50% of the annual payment to each semi-annual principal and interest payment. It also recognizes the ability of the issuer to contract additional debt without the consent of noteholders, subject to a minimum 1.30x DSCR, mitigated by the requirement of ratings reaffirmation.

OUTLOOK

The stable outlook reflects Moody's expectation that the project will operate in line with its historical performance, leading to DSCRs above 1.70x, and that the economics of the oil field will remain attractive to the offtakers.

ISSUER PROFILE

Guara Norte S.a r.l. is the SPV owner of the Cidade de Ilhabela FPSO, which carries a production capacity of 150,000 barrels of oil equivalent per day (boed) and a storage capacity of 1,600,000 barrels of oil. The vessel was specifically designed and fit for the characteristics of the Sapinhoa oil field, which is located 300 km off the coast of Brazil and achieved commercial operations in November 2014. It is chartered to Petrobras, as operator of the oil field and leader of the consortium which holds the concession to operate the oil field until 2036. Sapinhoa produces oil through two FPSOs, with a total production capacity of 240,000 boed, and is one of the few oil fields which operate with more than one FPSO. In 2019, Guara Norte held uptime of 99.3%, used six days of planned maintenance, received $223 million in charter agreement payments, and generated $183 million in operating cash flow (before interest payments). Uptime in the eleven months up to November 2020 has averaged 99.02%, and aside from a slight increase in operating expenses related to additional safety measures and other protocol, the vessel has operated without major consequences from the spread of the coronavirus.

METHODOLOGY

The principal methodology used in this rating was Generic Project Finance Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1194215. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Bernardo Costa
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's America Latina Ltda.
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Michael J. Mulvaney
MD - Project Finance
Project Finance Group
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Client Service: 1 212 553 1653

No Related Data.
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