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28 Oct 2010
Infrastructure Bond secured by Petrobras Charter and Service Agreement Revenue
New York, October 28, 2010 -- Moody's Investors Service has assigned a first time Baa3 rating
to the Norbe VIII/IX Finance Ltd. (the "Issuer") Infrastructure
Bond (or "Notes") due June 2021 expected to be issued in the
amount of approximately $1.5 billion. The rating
on the Infrastructure Bond carries a stable outlook. The Bond is
unconditionally guaranteed by Odebrecht Drilling Norbe VIII L.L.C.
("ODN VIII") and Odebrecht Drilling Norbe IX L.L.C.
("ODN IX", each a "Project Company" and
collectively known as the "Project Companies" and "Borrowers"),
limited liability companies which are the respective owners of the vessels
and are currently incorporated in Delaware. Payment of the debt
is secured, on a senior basis, by revenues received by each
of the Project Companies under distinct Charter Agreements with Petróleo
Brasileiro S.A. ("Petrobras") for the use of
the drilling vessels, Odebrecht Drilling Norbe VIII ("Norbe
VIII") and Odebrecht Drilling Norbe IX ("Norbe IX" ,
and with the Norbe VIII collectively referred to as the "Drillships"
or "Vessels"). Both Drillships are currently under
construction. In addition, revenue stemming from the Service
Agreements between Petrobras and Odebrecht Oleo e Gas ("OOG"),
a wholly owned subsidiary of Odebrecht S.A., for each
of the Vessels is unconditionally pledged to the payment of the Notes.
Proceeds of the Infrastructure Bond will be used to refinance the outstanding
bank debt of the Project Companies, originally acquired to fund
the construction costs, transaction costs, and interest during
the construction phase of the Drillships.
The investment grade rating reflects reliance for the payment of debt
service on a highly stable and predictable revenue source from Petrobras
(foreign currency rating Baa1, positive outlook), the anticipated
up-time performance of the Norbe VIII and Norbe IX, the projected
full market value of the Drillships at the end of the contract period
which allow for these to be liquidated at a substantially lower value
and manage to pay the bullet maturity, and the long-standing
relationship between Odebrecht and Petrobras in the oil and gas services
sector in Brazil.
The project consists of the securitization of revenues stemming from the
Petrobras Charter and Service Agreements for the Norbe VIII and Norbe
IX Drillships. Under the respective Charter Agreements, Petrobras
pays each Project Company a daily rate according to the availability of
the Drillship. These revenues, along with other assets are
pledged to a project account that will pay debt service on the notes according
to schedule that amortizes 70% of the gross amount of the Notes
by 2021. The remaining 30% matures in a bullet payment at
the legal final date, which in this structure is extendable for
up to one year. Refinancing risk is managed in part through the
use of a cash trapping mechanism in the last six semesters of the Charter
Agreement, the product of which will be applied towards payment
of the outstanding balloon. The value of the Drillships at the
end of the contract period is also an important consideration in mitigating
The Norbe VIII and Norbe IX are sixth generation, Dynamically Positioned
drilling vessels that will be utilized to drill wells for oil and gas
in water depths of up to 3,000 meters ( 10,000ft) and
to drill to a maximum depth of 12,000 meters ( 40,000ft)
below the seabed off the coast of Brazil. Both vessels are currently
under construction at Daewoo Shipbuilding and Marine Engineering (DSME)
shipyard in Okpo, South Korea, under turn-key,
fixed-price, date certain, and lump sum EPC contracts.
The construction period is guaranteed by the Korean Export-Import
Bank (the "KEXIM") (rated A1), which has provided two
letters of credit ("LC") covering all payments prior to delivery.
The LCs are assigned as collateral to the notes, and offer full
refunds of any amount advanced to DSME if the shipyard fails to comply
with the terms and conditions of the EPC contracts leading to its termination.
The operator for the Norbe VIII and Norbe IX, OOG is a wholly owned
subsidiary of Odebrecht SA. The operator is critical to the success
of the project given that the payments from Petrobras are based on the
availability of the Drillships. Up-time for new drilling
vessels is more difficult to predict than that of operating Vessels,
and the first year out is typically a ramp up year, with relatively
lower up-time performance. We believe the ramp up steady
operating up-time built into the projections is in line with that
of industry standards.
The Charter Agreements require the contractor to maintain insurance to
cover the Drillships and its related assets, as well as liability
insurance. The insurance package appears to be comprehensive and
adequate in terms of providing for the full market value of the vessel,
or the amount of the debt outstanding, if the Vessel is destroyed.
Although termination of these types of agreements is rare on the part
of Petrobras, the Charter Agreements include circumstances under
which the off-taker can terminate the agreement. In general,
these include operating type failures on the part of the contractor.
In addition, a bankruptcy on the part of the corresponding Project
Company or the operator would allow Petrobras to terminate the agreement.
There is no cross-default between the Norbe VIII and Norbe IX Charter
Agreements. Concerns regarding the probability that the Project
Companies could be pulled into a bankruptcy proceeding of OOG or other
Odebrecht companies are mitigated in part by the security interest in
the shares of the Project Companies as part of the collateral package
of the financing and by the differing jurisdictions of the various companies.
The base case scenario incorporated an average up-time ratio of
94.7% over the ten-year contract period. All
expenditures are accounted for under the corresponding project company
cash flows, with a cap on operating expenditures built into the
transaction. Under this case, the cash flows produce strong
EBITDA margins averaging 80% over the life of the Agreements.
Under the financing documents, cash available for debt service includes
the amount from the mobilization fee that is being held in reserve through
the life of the bonds, in the amount of $12 million.
The Infrastructure Bond will pay interest and principal on a semi-annual
basis. The debt service coverage ratio under the indenture averages
1.43x for the 2012-2016 period, with a minimum DSCR
of 1.30x in June 2013. Moody's DSCR calculation,
which does not take into account the rolling coverage of the retained
maintenance fee yields an average DSCR of 1.29x in the 2012-2016
period and a minimum DSCR of 1.17x in June 2013, not including
2011 which is a partial year.
Notable refinancing risk is present given the 30% of original principal
outstanding at the end of the Charter Agreement and the expected amortization
period. However, the amount of the Notes outstanding at the
end of the contract period is lowered to approximately 15% of original
principal when netting out the funds from the Debt Service, O&M
Reserve Account and the Balloon Retention Account. Refinancing
risk is also mitigated, in our view, by possibility of re-chartering
with Petrobras, chartering the Drillships in another region,
or selling the assets if necessary.
The pledge on the senior secured Infrastructure Bond consists of a first-priority
liens on substantially all of the Issuer and Project Companies'
assets, including a first priority mortgage on the project assets.
In addition, the lenders have step-in rights during the operating
The rating is well placed in its rating category but could experience
upward pressure if significant higher than anticipated up-time
performance and/or cost containments led to consistently high debt service
coverage levels and the excess cash was used to secure the payment of
the bullet maturity at the end of the amortization period.
A start-up performance level of either of the Drillships that is
notably and consistently lower than expected under the base case will
affect the charter revenues coming from Petrobras, and hence the
ability of the issuer to meet debt service requirements at the level that
is expected for this rating category.
The rating was assigned by evaluating factors believed to be relevant
to the credit profile of the Project such as i) the business risk and
competitive position of the project versus others within its industry
or sector, ii) the capital structure and financial risk of the project,
iii) the projected performance of the project over the near to intermediate
term, and iv) the project's history of achieving consistent operating
performance and meeting budget or financial plan goals. These attributes
were compared against other projects believed to be comparable and to
ratings assigned to other projects of similar credit risk.
For detailed information please see "Norbe VIII/IX Finance Ltd Pre-Sale
Report" published on October 28, 2010.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit 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.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Chee Mee Hu
MD - Project Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Baa3 to the first time issuance of the Norbe VIII/IX Finance Ltd
250 Greenwich Street
New York, NY 10007
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