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Rating Action:

Moody's downgrades Limetree Bay Terminal's senior secured rating to Caa1, outlook negative

25 Jun 2021

$448 million of rated debt outstanding

New York, June 25, 2021 -- Moody's Investors Service, ("Moody's") has downgraded the rating on Limetree Bay Terminals, LLC's (Limetree Bay Terminals) $465 million senior secured term loan to Caa1 from B2. The rating outlook is negative. This concludes the rating review for downgrade that was initiated on 20 May 2021.

Downgrades:

..Issuer: Limetree Bay Terminals, LLC

....Senior Secured Bank Credit Facility, Downgraded to Caa1 from B2

Outlook Actions:

..Issuer: Limetree Bay Terminals, LLC

....Outlook, Changed To Negative From Rating Under Review

RATINGS RATIONALE

Today's downgrade to Caa1 follows the announcement by Limetree Bay Terminals' parent company Limetree Bay Energy, LLC to halt indefinitely any restart efforts at the adjacent refinery due to financial constraints.[1] This announcement follows the United States Environmental Protection Agency's (EPA) decision on 14 May 2021 to pause all operations at the adjacent refinery for a period of up to 60 days. As a result, Limetree Bay Terminals will lose its largest customer representing approximately $52 million of expected operating revenue in fiscal 2021. Moody's views the halt of restart efforts at the refinery as an environmental risk under its ESG framework.

Limetree Bay Terminals had a long-term terminal services agreement with the adjacent refinery and its sister company for approximately 11.9 million barrels of capacity and a shared service agreement for power, water and wastewater services as well as certain insurance policies. Without the refinery as a customer the expected turnaround in credit metrics and material excess cash flow generation in 2021 becomes unlikely.

Also, liquidity will likely be tight in 2021 until additional external customers have been found. As of March 31, 2021, Limetree Bay Terminals had around $12 million of unrestricted and restricted cash on balance sheet.

Moody's projects that Limetree Bay Terminals will need to reduce operating expenditures and tap in its cash on balance sheet or additional support from its parent to make its debt service in 2021 and maintain its debt service coverage ratio (DSCR) financial covenant above 1.1x. While Limetree Bay Terminals has historically benefitted from substantial sponsor support, uncertainty is high at this juncture whether sponsors are willing to provide additional liquidity support for the terminal. Moody's views the uncertainty around future sponsor support for the terminal during the transition period as a governance risk under its ESG framework.

Moody's believes that Limetree Bay Terminals' oil storage operations have market value despite the halting of operations at the refinery and that management will successfully replace at least a portion of the refinery capacity with contracts with external customers. However, there may be a transition period of months and execution risk is high particularly as it relates securing reasonable contract terms.

Limetree Bay Terminals has only marginally reduced its debt load since the 2017 issuance of the seven-year senior secured term loan, having paid only mandatory amortization.

Other factors considered in the rating are (1) high customer concentration and an ongoing dispute with a material customer; (2) more favorable business conditions for storage terminals in 2020 and 2021; (3) the historical support from its sponsors which have supported the project with substantial equity injections since rating assignment; (4) low operating complexity of storage terminals; (5) standard project finance features and (6) no direct exposure to commodity risks.

RATING OUTLOOK

The negative outlook reflects the execution risk of the transition period to replace the refinery contracted tanks with external customers in the next few months, the project's limited liquidity to absorb the loss of the refinery as a customer and the related uncertainty around any future liquidity support from the sponsor group.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

WHAT COULD CHANGE THE RATING UP

- The refinery is successfully replaced by contracts with external customers

- FFO/debt around 7.5-10% and DSCR comfortably above 1.1x

- Positive excess cash flow generation applied to debt reduction

WHAT COULD CHANGE THE RATING DOWN

- Inability to replace refinery with external customers

- Inability to maintain DSCR above 1.1x and FFO/debt above 5%

- Weakening liquidity profile or reduced sponsor support

PROFILE

Limetree Bay Terminals, LLC is a wholly-owned subsidiary of Limetree Bay Energy, LLC which is owned by an affiliate of private equity sponsors EIG and a syndicate of other investors.

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.

METHODOLOGY

The principal methodology used in this rating was Generic Project Finance Methodology published in June 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1244806. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

REFERENCES/CITATIONS

[1] Statement from Acting EPA Regional Administrator Walter Mugdan on Limetree Bay Indefinite Closure, 21-Jun-2021; Limetree Bay Energy, LLC announcement 21-Jun-2021

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
VP - Senior Credit Officer
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

No Related Data.
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