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20 Sep 2010
Notes payment is backed by revenues from the charter and operating services contracts with Pertobras
New York, September 20, 2010 -- Moody's Investors Service has assigned a first time Baa3 rating
and a stable outlook to the Lancer Finance Company (SPV) Limited,
Series 2010 Notes due 2016 to be issued in the amount of U.S.
$275 million. The Notes are being issued under Rule 144A
under the Securities Act and will be sold in the US and in Brazil.
The notes are being issued by Lancer Finance Company (SPV) Limited (the
Issuer), a newly formed special purpose vehicle incorporated in
the British Virgin Islands. The debt is secured by revenues received
by the issuer under seven-year charter and operating services agreements
between Petroleos de Brazil S.A. ("Petrobras")
and Turasoria S.A. L.L.C for the use of the
S.C. Lancer drilling vessel. Proceeds of the notes
will be used to repay outstanding bank debt, all issuance related
costs and to partially fund the purchase of two new drilling vessels currently
under construction which are due to be delivered to Petrobras in the next
The Baa3 rating reflects reliance for the payment of debt service on a
highly stable and predictable revenue source from Petrobras (rated Baa1,
positive outlook), the issuer's long-standing relationship
with Petrobras in this same line of business, the proven track record
of the S.C. Lancer operations during this time, and
debt service coverage ratio (DSCR) at comfortable levels for the assigned
rating. Additionally, the structure provides relatively strong
lender protections including cash trapping and disposition of the collateral
in the event of various degrees of stress in the project.
The basis for the project is the charter agreement for the use of the
S.C. Lancer drilling vessel between Petrobras S.A.
and Turasoria S..A., L.L.C.
( "the Lessor") . Under the agreement, Petrobras
pays the a daily rate as long as the vessel is available to operate,
the payments of which are made directly to West LB as Collateral Agent,
which in turn transfers it to Deutsche Bank, as Indenture Trustee
for direct payment to note holders. The Indenture Trustee will
pay scheduled interest and target principal until the expected repayment
of the notes in June 2016. The legal maturity date of the notes
is expected to be set for December 2016.
The S.C. Lancer is a dynamically positioned (DP) drilling
vessel able to drill in mid-depth waters. The vessel has
been under a charter agreement with Petrobras since 1992, and the
current fourth extension of the agreement expires in August 2016.
Historically, the S.C. Lancer has performed well by
industry standards, with a average utilization rate of 96.1%
over the last 10 years.
The vessel is owned by Turasoria S.A., a Panamanian
corporate, and sails under the flag of Panama. Turasoria
S.A. charters the S.C. Lancer to The L.L.C.
(a Delaware Corporation) for the purposes of the latter being the party
to the Petrobras agreement. Schahin Engenharia, a subsidiary
of Schahin Holdings, holds the operating service agreement with
Petrobras and is the operator of the S.C. Lancer.
Under a separate Operating Services Agreement with Petrobras, Schahin
Engenharia receives a daily rate for operating expenditures. These
revenues are also pledged to the notes being rated herein. The
daily rate paid under the Operating Services Agreement covers only about
40% of the total operating costs of Schahin Engenharia for the
S.C. Lancer. The remainder will be met by the cash
that is returned to the Lessor at the bottom of the revenue waterfall,
which under management's base case and several stress scenarios
is more than sufficient to cover the net amount of operating expenditures.
Full coverage of operating expenses is ultimately the responsibility of
The current useful life of the vessel is calculated to be 11.5
years, with the assumption that the customary maintenance and dry
docking schedule be respected. The current fair market value of
the vessel, without the benefit of the charter agreement,
is estimated at $224 million and the full market value at the end
of the charter agreement is estimated at $134 million. These
values are key in the event that bondholders were to act on the security
package for the notes.
The vessel is fully insured for total loss and business interruption insurance
at an amount of $565 million, which more than adequately
covers the notes in the event of loss of the vessel. On the other
hand, in the event of an accident, the Petrobras Charter Agreement
provides for a limit on environmental liability of $500,000
per incident to the Lessor and/or Schahin.
Petrobras has the option to terminate the charter agreement under certain
circumstances including a bankruptcy of Turasoria S.A.,
L.L.C. Concerns regarding the probability that Turasoria
S.A., L.L.C. could be pulled
into a bankruptcy proceeding of the Schahin Group companies are mitigated
in part by the security interest in the shares of the Turasoria companies
as a part of the collateral package, and in a very important way
by the consideration that pulling the L.L.C. into
bankruptcy would not be to the benefit of shareholders of Schahin,
given that the termination of the charter agreement would end what is
the relatively large cash flow represented by the revenues of the S.C.
Lancer Operations. Further protection to bondholders is offered
by the Share Pledge Agreement that allows the trustee an irrevocable voting
proxy to the shares of capital stock of the Owner and the membership interests
of the Issuer with respect to any matters relating to the bankruptcy,
insolvency, reorganization, or other similar proceeding of
Under management's base case, the indenture debt service coverage
ratio (DSCR), is 1.43x on average from 2011 and 2015.
The notes' indenture DSCR is defined as net charter revenues (charter
revenues minus charter expenses divided by scheduled interest and target
principal payments). Additionally, Moody's calculates
a consolidated net revenue DSCR, which considers the operating revenues
under the Operating Services Agreement as well as the related operating
expenses of the operator, in light that the operating expenses have
to be fully covered for the vessel to be operating and available.
The average consolidated net revenue DSCR between 2011 and 2015 is 1.17x,
which indicates that the project is able to cover charter and operating
expenses with a moderate margin which allows for it to pay scheduled interest
and targeted principal under a series of stress scenarios that incorporate
increased down time, higher than anticipated dry docking expenses,
and a more rapid rise in operating expenditures.
The structure allows for events which trigger the change of operator,
including non-payment of other debt or a bankruptcy filing of the
operator. In the event that the operator is replaced, the
incumbent operator must remain in place until the new operator takes over
the operations, thus ensuring that the vessel will not be idle during
The multi-asset collateral package for the senior notes provides
adequate security to note holders. The waterfall is fairly typical
for a project financing, with the addition of accounts that are
specific to this transaction, such as the dry-dock reserve.
Investor protections include trigger events in which cash can be trapped
at the bottom of the waterfall under certain circumstances including a
DSCR for the most recent three months is less than 1.30x.
The events of default in the transaction can result in remedies that allow
note holders to secure the collateral package and sell assets in order
to recoup their investment, or accelerate principal repayment by
trapping cash and applying the funds to repay debt. There is no
option for note holders to declare the debt be immediately due and payable.
A ratio measuring the debt of the issuer against the value of the S.C.
Lancer, which provides information to investors about the ability
to repay the debt by liquidating the asset if necessary, is a key
to both the trigger events and those that could result in the acceleration
of principal payment.
The rating is well placed in its rating category, but could experience
upward pressure if significant cost containments on the part of the lessor
and the operator resulted in consistently higher than anticipated debt
service coverage levels.
A level of performance by the S.C. Lancer that is notably
lower than expected under the base case and which affects the revenues
received from Petrobras under the charter agreement would place downward
pressure on the rating.
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 "Lancer Finance Company (SPV)
Limited Pre-Sale Report" published on September 20,
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
Service's information, confidential and proprietary Moody's
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
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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 first time Baa3 rating to the Lancer Finance Company (SPV) Limited
250 Greenwich Street
New York, NY 10007
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