Toronto, October 26, 2017 -- Moody's Investors Service, (Moody's) today assigned
a first-time Baa1 senior secured rating to the proposed CAD 545
million senior secured bonds due December 31, 2041 to be issued
by First Nations ETF Limited Partnership (FNLP). The rating outlook
is stable.
The actual bonds issuance amount will be finalized upon the financial
close which is expected to occur in the fourth quarter of 2017.
FNLP will use the proceeds from the bonds to finance the acquisition of
a 49% interest in Thebacha Limited Partnership (Thebacha LP) (and
a 49% interest in East Tank Farm-D Corporation, the
general partner or Thebacha GP) which owns the East Tank Farm project
(ETF), currently wholly owned by Suncor Energy Inc. (Suncor,
Baa1 stable) and a wholly-owned subsidiary of Suncor. After
the transaction, Suncor and its wholly-owned subsidiary will
collectively retain 51% ownership of Thebacha LP.
RATINGS RATIONALE
The Baa1 rating reflects the following considerations:
- First and foremost, the financing is for a transaction
that represents a unique partnership between Suncor and two First Nations.
As a result, Suncor has agreed to a number of contractual provisions
in order to support the proposed financing.
- After transaction close, Suncor (or its affiliates) will
continue to hold key roles in the ETF project, including being a)
a 51% owner of Thebacha LP after FNLP completes the acquisition
of its 49% interest; b) a 50.8% shipper of bitumen
through ETF and c) the operator of ETF.
- Construction risk is very limited since the in-service
date of ETF was declared on July 14 2017; Thebacha LP is collecting
its agreed to revenues under its three long-term Terminal Service
Agreements (TSA's); a majority of the new asset commissioning is
completed; the remaining commissioning is not expected to be problematic.
- ETF is an essential asset for the Fort Hills oil sands mine (Fort
Hills) that will be operational in 2018. ETF is a captive asset
because there is currently no other way to get the bitumen from Fort Hills
to markets except through ETF for cooling and blending.
- Thebacha LP is expected to generate very predictable cash flows
under the TSA's with the ultimate owners of Fort Hills. Under
the TSA's, the three shippers (Suncor, and affiliates
of TOTAL S.A and Teck Resources Limited) pay tolls that will allow
Thebacha LP to recover its operating and maintenance costs, a fixed
return on the rate base, depreciation of the rate base and miscellaneous
items. Such payments are not subject to onerous performance standards.
- The weighted average credit quality of the shippers that are
party to the TSA's (or their guarantors) is solid investment grade.
Even if the weakest of the three shippers was to default under its TSA's,
not pay the applicable termination fee and not be replaced, we expect
that FNLP could still service its debt, provided the remaining shippers
pay tolls in accordance with the TSA's.
- The contracts and financing have been structured so that FNLP
can rely on a stable stream of distributions from Thebacha LP and most
events that could reduce these distributions have been mitigated,
limited or reserved for on a conservative basis. FNLP's debt service
coverage ratio (DSCR) is expected to be 1.40x minimum and 1.62x
average.
- Even in case of force majeure event, the revenues from
the shippers are not lost, rather, they may be deferred and
repaid over time. Further, there is a supportive definition
of force majeure event whereby if an event affects both the shippers and
Thebacha LP, it will be deemed a shipper force majeure event and,
in that case, the ability to defer payment is quite restricted.
- If the TSA's are terminated, for whatever reason,
a termination payment is paid by the shipper that covers outstanding FNLP
debt (although in certain cases it may not cover make whole amounts or
the termination amount may be limited by the fact that the Elf Aquitaine
guarantee for its shipper affiliate has a cap).
The credit profile is constrained by the following:
- The financing is an equity financing and thus lenders do not
benefit from any assignment of the major project agreements or security
on the ETF assets.
- Economic rationale of the overall Fort Hills project (as for
many oil sands projects) is not that strong in current oil prices;
However, once the mine is built it is not expected to shut down
and the mine life is very long, being estimated at between 40 and
50 years.
The rating outlook is stable reflecting the expectation that FNLP will
receive stable distributions from Thebacha LP and exhibit stable and predictable
DSCR for the term of the debt.
WHAT COULD CHANGE THE RATING UP
» The rating could face upward pressure if the creditworthiness of
the shippers (or their guarantors) improves;
» Absent any changes in the credit quality of the shippers,
the rating has limited ability to be upgraded in the short term as the
expectation is for the operating and financial performance to track the
forecast.
WHAT COULD CHANGE THE RATING DOWN
Factors that could lead to a rating downgrade include the following:
» Deterioration in the creditworthiness of the shippers (or their
guarantors);
» The terms of the TSA's are weakened;
» The average annual DSCR falls below 1.55 times;
» A prolonged force majeure event;
» Abandonment of Fort Hills oil sands mine;
» Termination of a TSA by a shipper without replacement.
FNLP is a single purpose entity who is responsible to finance its acquisition
of 49% interest in Thebacha LP which owns ETF. FNLP is 70%
owned by a wholly-owned subsidiary of Fort McKay First Nation and
30% owned by a wholly owned subsidiary of Mikisew Cree First Nation.
The principal methodology used in this rating was Generic Project Finance
Methodology published in December 2010. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
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.
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.
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 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.
Catherine N. Deluz
Senior Vice President
Project Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
A.J. Sabatelle
Associate Managing Director
Project Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653