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Rating Action:

Moody's assigns Ba2/Aa2.br ratings to CEA I´s BRL 35 million senior secured debentures; outlook negative

 The document has been translated in other languages

03 Oct 2016

Sao Paulo, October 03, 2016 -- Moody's America Latina (Moody's) assigned a Ba2 global scale rating and a Aa2.br Brazil national scale rating to Cea I - Centrais Eolicas Assurua I Spe S/A ("CEA I", the "company" or the "issuer") BRL 35 million senior secured debentures, to be issued in the form of infrastructure debentures pursuant to Law 12,431. The outlook for all ratings is negative. This is the first time that Moody's has rated the company´s securities.

CEA I is a special purpose vehicle fully owned by CEA Energia S.A. (not rated), for which the main ultimate shareholders are Ferraz de Campos Family Office, Bayar Participações and Gel Engenharia. CEA I has total installed capacity of 68MW consolidating the Assurua II, V, VII wind power projects located in the State of Bahia (cluster Xique-Xique), that started operations in April, 2016. The G97 2.0 MW wind turbines were supplied by Gamesa, with a two-year guarantee. Gamesa will be responsible for the O&M during the first five years with the possibility to increase for five additional years. The company´s generated energy is fully contracted for 20 years through a reserve energy auction (LER 2013) contract signed with CCEE at physical guarantee of 33.6 MWAvg.

Moody´s anticipates that the debentures will be issued by mid-October. The assigned ratings are based on preliminary documentation received by Moody's as of the rating assignment date. Moody's does not expect changes to the documentation reviewed over this period or anticipates changes in the main conditions that the debentures will carry. Should issuance conditions and/or final documentation program 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 fully-amortizing debentures will have a 12-year maturity with a bi-annual tailor-made amortization schedule. The debentures´ security package includes: (i) pledge of the issuer's shares (ii) pledge of its projects' (Assurua II, V, VII) shares and equipment; (iii) pledge of the concession rights; (iv) pledge of receivables; (v) pledge of reserve accounts; (vi) assignment of insurance proceeds; and (vii) assignment of a letter of credit from Itau Unibanco S.A. (Ba2, negative) valid up to 2018. The security package will be shared between BNDES and the infrastructure debenture investors on a pari-passu basis.

The debentures will have usual and customary project finance covenants, similarly shared between the indenture and the BNDES loan, such as a minimum DSCR of 1.2x measured on an annual basis in addition to limitations on indebtedness, dividend distribution and security coupled with the need to maintain the project´s authorizations. Non-compliance with these covenants can trigger cross-default and debt acceleration under both BNDES's loan and the debentures as well as change of control or capital increases, if not previously approved by creditors.

The Ba2 rating reflects the (i) fully contracted revenue profile with a 20-year take or pay contract with CCEE (Brazilian Electricity Clearing House) as per the LER 2013 auction; (ii) adequate fuel source given the PPA conditions and a strong capacity factor, according to wind studies and the project´s limited operational track record; (iii) well known O&M operator and guarantees with a five year contract with Gamesa; (iv) proven technology and (v) adequate financial metrics under conservative assumptions. The overall supportive regulatory environment further supports the rating. On the other hand, the rating is somewhat constrained by (i) the sponsor´s short operating track record; (ii) relatively weak liquidity provisions compared to typical projects globally through a three month reserve account; (iii) relatively low minimum required DSCR of 1.2x.

Rating Outlook

The negative outlook reflects our view that in spite of the predictable and stable cash flows from the 20-year PPA contract with CCEE, the project has a local-content revenue profile that limits its upside credit profile to the current outlook on Brazil´s sovereign rating. Moreover, we understand that the off-taker (CCEE) is closely linked to the national electricity regulator, Aneel and consequently, to Brazil´s credit quality.

What Could Change the Rating - Up/ Down

In light of the negative outlook, we do not expect upward rating pressure in the short to medium term. Moody´s recognizes, however, that wind studies suggest a capacity factor potentially above the P90 1 year scenario used in our projections.

The rating could be downgraded if there is a significant and sustained deterioration in CEA I´s credit metrics or if the DSCR falls below 1.2x as per Moody´s standard adjustments. Additionally, a wind-fuel performance consistently below our expectations could also trigger a downgrade as well as the deterioration in the credit quality of CEA Energia and/or its ultimate shareholders. A change in control or in the corporate structure could also pressure the rating as well as a perceived weakened commitment from the sponsors with the project. Further deterioration in Brazil's sovereign credit quality could also trigger a rating action as well as our perception of a decline in the level of supportiveness, consistency and predictability of the Brazilian regulatory environment for the electricity sector. Any changes from the documentation received and the final indentures that lead to a weaker credit profile, project structure and/or security package could also trigger a downgrade.

The principal methodology used in these ratings was Power Generation Projects published in December 2012. Please see the Rating Methodologies page on www.moodys.com.br for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_189530.

REGULATORY DISCLOSURES

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's information.

Information types used to prepare the rating are the following: financial data, economic and demographic data, debt documentations, legislation, by-laws and legal documents, operating data, historical performance data, public information, and Moody's information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

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

Please see the ratings disclosure page on www.moodys.com.br for general disclosure on potential conflicts of interests.

Moody's America Latina Ltda. may have provided Other Permissible Service(s) to the rated entity or its related third parties within the 12 months preceding the credit rating action. Please go to the report "Ancillary or Other Permissible Services Provided to Entities Rated by Moody's America Latina Ltda." in the link: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_192482 for detailed information.

Entities rated by Moody's America Latina Ltda. and the rated entities' related parties may also receive products/services provided by parties related to Moody's America Latina Ltda. engaging in credit ratings activities within the 12 months preceding the credit rating action. Please go to the link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_192480 for a list of entities receiving products/services from these related entities and the products/services received.

Moody's ratings are constantly monitored, unless designated as point-in-time ratings in the initial press release. All Moody's ratings are reviewed at least once during every 12-month period.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.br.

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.

Please see ratings tab on the issuer/entity page on www.moodys.com.br for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com.br for further information.

Please see Moody's Rating Symbols and Definitions on the Ratings Definitions page on www.moodys.com.br for further information on the meaning of each rating category and the definition of default and recovery.

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

Please see www.moodys.com.br 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.br for additional regulatory disclosures for each credit rating.

Aneliza Crnugelj
Analyst
Infrastructure Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Michael J. Mulvaney
MD - Project Finance
Project Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

No Related Data.
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