$412.2 million of securities rated
Hong Kong, July 31, 2018 -- Moody's Investors Service has assigned definitive ratings to three classes
of notes issued by Bayfront Infrastructure Capital Pte. Ltd.
(the Issuer).
The complete rating action is as follows:
Issuer: Bayfront Infrastructure Capital Pte. Ltd.
U.S.$320,600,000 Class A Senior Secured
Floating Rate Notes due 2038 (the "Class A Notes"), Assigned Aaa
(sf)
U.S.$72,600,000 Class B Senior Secured
Floating Rate Notes due 2038 (the "Class B Notes"), Assigned Aa3
(sf)
U.S.$19,000,000 Class C Senior Secured
Floating Rate Notes due 2038 (the "Class C Notes"), Assigned Baa3
(sf)
The Class A Notes, the Class B Notes and the Class C Notes are referred
to herein as the "Rated Notes." In addition to the Rated Notes,
the Issuer also issued U.S.$45,800,000
subordinated notes due 2038.
Moody's ratings of the Rated Notes address the expected losses posed to
noteholders. The ratings reflect the risks due to defaults on the
underlying portfolio of assets, the transaction's legal structure,
and the characteristics of the underlying assets.
RATINGS RATIONALE
This is a project finance collateralized loans obligation (CLO) cash flow
securitization. The issued notes are initially collateralized by
a $458 million portfolio of 37 bank-syndicated senior project
finance and infrastructure loans to 30 projects located in various countries
in Asia Pacific and the Middle East. The portfolio is not expected
to be actively traded during the transaction period.
Moody's has assigned credit estimates to each of the loans in the target
portfolio as none of them are rated by Moody's.
Some of the loans benefit from external credit support provided by export
credit agencies, insurers, or multilateral financial institutions
(cover providers), such that the Issuer will be able to recover
part of, or in some cases all, the losses from the cover providers.
Moody's ratings of the Rated Notes have taken into account the following
characteristics of the initial target portfolio.
1. The underlying loans are all US dollars, floating rate
loans with a weighted average spread of 2.5%, and
a remaining portfolio weighted average life of about 5.4 years.
2. Roughly 30% of the portfolio (covered portion) benefit
from external credit support provided by export credit agencies,
insurers, or multilateral financial institutions.
3. With only 30 projects, the portfolio is highly concentrated.
The top three single projects' exposure amounts to 9.7%,
7.5% and 5.7% of the closing portfolio.
4. The portfolio has high sector concentrations with 39.5%
of the portfolio in oil, gas and commodities, 28.4%
in power generation non-renewables, and 13.1%
in power generation renewables.
5. The portfolio has high country risk as 35.8% of
the portfolio is to projects located in countries with speculative grade
foreign currency country ceilings, although over half of these projects
benefit from external credit support in the form of guarantees or insurance
policies.
6. The issuer has entered into master participation agreements
with several highly rated banks with respect to 46% of the portfolio,
instead of purchasing them directly.
7. About 24% of the portfolio, relating to 4 projects,
are still under construction, but they are near completion and benefit
from credit mitigants such as construction completion guarantees provided
by sovereign entities, the sponsor, export credit agencies,
insurers or multilateral financial institutions.
Moody's used a loan-by-loan Monte Carlo simulation framework
in Moody's CDOROM™ to model the portfolio loss distribution for
this CLO. At a portfolio level, Moody's notes that:
1. The weighted average rating factor (WARF) of the portfolio,
after applying the credit estimate notching adjustments, is 975.
2. The weighted average mean recovery rate assumption of the portfolio
is 76%.
3. The asset correlation of the portfolio is 29%.
Moody's assumed three years recovery delay for the uncovered portion of
the portfolio and one year recovery delay for the covered portion.
In addition to the quantitative factors that Moody's explicitly models,
the rating committee considered qualitative factors. Moody's considered
the structural protections in the transaction, the risk of an event
of default, the legal environment and specific documentation features.
All information available to rating committees, including macroeconomic
forecasts, inputs from other Moody's analytical groups, market
factors, and judgments regarding the nature and severity of credit
stress on the transaction, influenced the provisional rating decision.
The issuer has entered into purchase and sale agreements and master participation
agreements to acquire or to participate in the loans which form the target
portfolio. The transaction has a two years reinvestment period,
during which, the collateral manager may direct the Issuer to use
unscheduled principal collections and proceeds from the sale of credit
impaired or defaulted assets to purchase new assets. The purchase
of new assets is subject to certain conditions, including satisfaction
of the interest and over-collateralization coverage tests.
Alternatively, the manager can designate to apply those funds to
repay the Rated Notes.
After the reinvestment period, the collateral manager may no longer
direct the Issuer to purchase additional assets, and unscheduled
principal collections and proceeds from the sale of assets will be used
to amortize the notes in sequential order.
The transaction incorporates interest and over-collateralization
coverage tests which, if triggered, divert interest and principal
proceeds to pay down the notes in order of seniority. Apart from
this, the Issuer will use scheduled principal collection to amortize
the Rated Notes in sequential order.
This is the first CLO transaction of Clifford Capital Pte. Ltd.,
the collateral manager of the transaction. Clifford Capital was
set up in 2012 and is 40.5% indirectly owned by Temasek
Holdings (Private) Limited (Aaa stable) in Singapore. Clifford
Capital has experience in managing infrastructure loans and have committed
over $2 billion of loans and investments since its inception.
It acquired the Subordinated Notes at closing and intends to retain the
Subordinated Notes during the transaction period.
The issuer is a newly established special purpose company incorporated
in Singapore.
RATINGS METHODOLOGY:
The principal methodology used in these ratings was "Moody's Approach
to Rating Collateralized Debt Obligations Backed by Project Finance and
Infrastructure Assets" published in August 2015. Please see the
Rating Methodologies page on www.moodys.com for a copy of
this methodology.
Factors That Would Lead to an Upgrade or Downgrade of the Ratings:
The performance of the Rated Notes is subject to uncertainty. The
performance of the Rated Notes is sensitive to the performance of the
underlying portfolio and the credit quality of the cover providers and
counterparties of the participation agreements, which in turn depends
on economic and credit conditions that may change. The collateral
manager's investment decisions and management of the transaction will
also affect the performance of the Rated Notes.
Loss and Cash Flow Analysis:
Moody's CDOROM™ and CDOEdge™ model are the principal models
that we use to rate this CLO. We apply the Monte Carlo simulation
framework in Moody's CDOROM™ to model the portfolio loss distribution
for this CLO. The simulated defaults and recoveries for each of
the Monte Carlo scenario define the portfolio loss distribution.
Moody's then uses its CDOEdge™ cash flow model to estimates expected
losses on the CLO's tranches. We input portfolio default distribution
and recoveries in the CDOEdge™ cash flow model, which maintains
the portfolio loss distribution from CDOROM™. Recoveries,
recovery delay, portfolio amortization schedule and yield vector
are modeled in CDOEdge™.
The CDOEdge™ model incorporates various scenarios for default timing
and interest rate paths, and allocates cash flows arising from the
portfolio in accordance with the CLO's documentation.
Country ceiling event risk is modeled in two steps in CDOROM™.
In the first step, Moody's simulates whether country ceiling events
occur. All loans with projects domiciled in countries where country
ceiling events are simulated to occur would be simulated to default in
the model. In the second step, for loans with projects in
countries where country ceiling events are simulated not to happen in
the first step, Moody's simulates whether the loans default.
For loans under participation agreements, the loans would default
if either the loan or the participation agent, is/are simulated
to default in CDOROM™.
Moody's applied a default probability adjustment on project finance and
infrastructure loans so that along with applying high recovery assumptions
of the loans, the modelled expected loss of the loans would commensurate
with the credit estimate of the loans.
To take into account the unmonitored nature of credit estimates,
two notches of downward adjustment was applied to the largest credit estimates
representing 30% of the total portfolio in accordance with our
Updated Approach to the Usage of Credit Estimates in Rated Transactions
cross-sector rating methodology.
To assess the sensitivity of the notes' ratings to changes in the collateral
pool expected loss (expressed in terms of WARF level) and asset correlation,
the key assumptions, we modeled the transaction under alternative
WARF and asset correlation.
The WARF of the portfolio would deteriorate by 18% to 1146,
if we apply a two notches down adjustment on the credit estimates of the
loans in which we expect the projects to be negatively impacted by a severe
fall in commodity prices. If we increase the asset correlation
assumption among those loans to 75%, the asset correlation
of the portfolio would increase by 59% to 46%.
Below is a summary of the impact of an increase of WARF of the portfolio
to 1146 on the Rated Notes (shown in terms of the number of notch difference
versus the current model output, whereby a negative difference corresponds
to higher expected losses), assuming that all other factors are
held equal:
Rating Impact in Rating Notches
Class A Notes: -1
Class B Notes: -1
Class C Notes: 0
Below is a summary of the impact of an increase in asset correlation of
the portfolio to 46% on the Rated Notes (shown in terms of the
number of notch difference versus the current model output, whereby
a negative difference corresponds to higher expected losses), assuming
that all other factors are held equal:
Rating Impact in Rating Notches
Class A Notes: -1
Class B Notes: -2
Class C Notes: -1
Further details regarding Moody's analysis of this transaction may be
found in the related pre-sale report, available soon on www.moodys.com.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
Moody's took into account one or more third party due diligence assessment(s)
regarding the underlying assets or financial instruments (the "Due Diligence
Assessment(s)") in this credit rating action and used the Due Diligence
Assessment(s) in preparing the ratings. This had a neutral impact
on the ratings.
The Due Diligence Assessment(s) referenced herein were prepared and produced
solely by parties other than Moody's. While Moody's
uses Due Diligence Assessment(s) only to the extent that Moody's
believes them to be reliable for purposes of the intended use, Moody's
does not independently audit or verify the information or procedures used
by third-party due-diligence providers in the preparation
of the Due Diligence Assessment(s) and makes no representation or warranty,
express or implied, as to the accuracy, timeliness,
completeness, merchantability or fitness for any particular purpose
of the Due Diligence Assessment(s).
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
occurring, results in the expected loss of the rated instrument.
Moody's describes its loss and cash flow analysis in the section
"Ratings Rationale" of this press release.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
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.
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.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Elaine Ng
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Jerome Cheng
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
