Around $457 million of rated debt affected
New York, February 21, 2019 -- Moody's Investors Service, ("Moody's") has downgraded the rating
on Limetree Bay Terminals, LLC's (LB Terminals) $465 million
senior secured term loan ($457 million outstanding at Dec 31,
2018) to B1 from Ba3. The rating outlook has been changed to stable
from negative.
RATINGS RATIONALE
Today's rating action factors in the chronic operating financial
underperformance at LB Terminals and our belief that continued support
from its sponsors will enable LB Terminals fund its expansion-focused
capital spending in 2019. The rating action acknowledges that weak
operating and financial performance will continue through the first half
of 2019 but should strengthen with the expected completion of the Limetree
Bay Refinery. In the meantime, continued support from the
sponsor group will help the project remain in compliance with its financial
covenants and guarantee an adequate liquidity profile.
The industry environment for oil storage remains challenging with lower
ship visits and customer renewals than initially expected leading to weak
operating cash flow generation. In the first nine months of 2018,
we calculate that LB Terminals generated negative $9.9 million
of cash flow available for debt service (CFADS) after maintenance expenditures.
Growth capital expenditures were funded with around $124 million
in equity contributions from its sponsors. Operating performance
will likely remain weak until storage tanks for the adjacent Limetree
Bay Refining complex come on line sometime during the second half of 2019.
Should management achieve its 2019 budget, we would expect debt
service coverage ratio (DSCR) trending to around 1.6x and FFO/debt
to around 10% in 2019. These metrics do not include around
$15.8 million in hurricane Maria related net insurance proceeds
received by LB Terminals in January 2019, that were received after
the 2019 budget submission. However, appreciable debt reduction
from excess cash flow generation will likely not start until 2020,
a year later than previously expected, adding to refinancing risk.
The B1 rating recognizes the additional contracted capacity of 12 million
barrels associated with the Limetree Bay Refining reducing long-term
reliance on Unipec America Inc. (10 million barrel contracted capacity
for 10-years). However, customer concentration will
remain high with these two customers representing around 74% of
expected contracted capacity in 2020. An unexpected loss of Unipec
or the Limetree Bay Refinery as a customer could lead to a substantial
drop in revenue.
Other factors considered in the rating are (1) the low operating risk
of storage terminals and the experience of management and employees in
operating storage assets; (2) the large scale of the facility relative
to smaller peers in the Caribbean region, (3) the take-or-pay
nature of the customer contracts with fixed capacity charges providing
a degree of stability to the revenue basis (4) structural features such
as a first lien security on assets, the existence of a LC-backed
six months debt service reserve, a cash flow sweep requirement of
the greater of (i) 50% of excess cash flow and (ii) the target
debt balance, and a 1.1x maintenance DSCR financial covenant;
and (5) no direct exposure to commodity risks.
OUTLOOK
The stable outlook considers Moody's expectation of continued support
by the sponsor to fund expansion growth capital expenditures and of improving
operating and financial performance starting in Q3 and Q4 of 2019 as the
terminal should begin to ramp up storage capacity for the Limetree Bay
Refining complex under the terminal services agreement.
WHAT COULD CHANGE THE RATING DOWN?
- Inability to maintain adequate liquidity reserve for managing
working capital and maintenance capital expenditures
- Delay of a restart of the adjacent Limetree Bay Refinery
- No visibility for deleveraging with the inability to improve
the DSCR to 1.5x and FFO/debt to 7.5%-10%
WHAT COULD CHANGE THE RATING UP?
- Successful ramp-up of operations and storage capacity
for the refinery
- Track record of renewing maturing contracts
- Credit metrics closer to sponsor's base case with Debt/EBITDA
trending to 4.0x, DSCR improving to around 1.75x,
FFO/debt above 10% and evidence of sustained, debt reduction
through excess cash flow generation
OBLIGOR PROFILE
Limetree Bay Terminals, LLC is a wholly-owned subsidiary
of Limetree Bay Ventures which is owned by an affiliate of private equity
sponsor ArcLight Capital Partners (79%), a syndicate of other
investors (15%) and an affiliate of Freepoint Commodities,
LLC (7%).
The project is a storage terminal and marine facility on around 1,500
acres of land on the south shore St. Croix, US Virgin Islands.
Limetree has a terminal operating agreement with the VI Government that
extends through January 4, 2041 with the option by the terminal
owner to extend the agreement for another 15 years.
LB Terminals has repurposed the asset as a storage terminal, restarted
storage tanks and entered into fee-based contracts.
RATING METHODOLOGY
The principal methodology used in this rating was Generic Project Finance
published in April 2018. 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.
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.
Kathrin Heitmann
Vice President - Senior Analyst
Project Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
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 Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
