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Rating Action:

Moody's downgrades the ratings of the senior secured notes of Schahin's rated vessels; ratings remain under review for downgrade

15 Apr 2015

New York, April 15, 2015 -- Moody's Investors Service (Moody's) downgraded and maintained on review the ratings of the senior secured notes of the following Schahin-sponsored issuers:

Lancer Finance Company (SPV) Limited

Senior secured global notes due July 2016 downgraded to B3 from B1

Approximately US$ 64 million of debt affected

Schahin II Finance Company (SPV) Limited

Senior secured global notes due September 2022 downgraded to B3 from B1

Approximately US$ 652 million of debt affected

RATINGS RATIONALE

The rating actions reflect our heightened concern about liquidity pressures on Schahin Petroleo and Gas (unrated) as well as Schahin Engenharia S.A. (unrated), the operators of the Schahin II and Lancer vessels, respectively, and part of the Brazilian-based Schahin Group (unrated). In the extreme case of bankruptcy of the operators, we believe that the transactions' charter and services agreements can be terminated, which could trigger an event of default under the respective bonds' indentures.

In addition, Moody's continues to be concerned about the increased liquidity risk associated with the deteriorating credit profile of Petroleo Brasileiro S.A. ('Petrobras') (Ba2/On Review), the sole contractual off-taker and revenue source to service the outstanding debt issued by the above referenced entities. On February 24, 2015 Moody's downgraded all ratings for Petrobras (including debts rated based on Petrobras' guarantee), including a downgrade of the company's senior unsecured debt to Ba2 from Baa3, and assigned a Ba2 Corporate Family Rating (CFR) to the company. Moody's also lowered the company's Baseline Credit Assessment (BCA) to b2 from ba2. All Petrobras' ratings remain on review for downgrade.

Petrobras' rating downgrade reflects continued concerns about the potential impacts of the on-going corruption investigations, which also affect Schahin Engenharia, as well as significant liquidity pressures that could arise as a consequence of Petrobras' failure to provide timely financial statements. Petrobras' debt agreements include covenants for the timely provision of financial statements. Extended delays in providing financial statements pose the risk that creditors may take actions that could eventually lead to payment acceleration. For a more detailed discussion of the recent Petrobras rating action, please refer to Moody's press release 'Moody's downgrades Petrobras' ratings to Ba2; maintains review for downgrade', dated February 24, 2015.

Our rating actions also take into account, on a relative basis, the vessels' recent operating performance in December 2014 and January 2015 as measured by average uptime, the age and value of the vessels, chartered daily rates as compared to current market daily rates, maturity of the outstanding debt, re-contracting risk, liquidity arrangements as measured by level of reserve accounts, and the potential impact on the issuers of the corruption investigations at the off taker's and sponsors' level, where applicable.

WHAT COULD CHANGE THE RATING UP/DOWN

We do not anticipate upward pressure in the near to medium term. The ratings review will continue to focus on a number of credit factors including: (i) the credit quality of the operators; (ii) Petrobras' ratings, (iii) Petrobras' production and exploration strategy amid weakening sector fundamentals due to falling oil prices and other developments, and how the rated vessels fit into Petrobras' strategy, (iv) uncertainties due to the on-going corruption investigations, (v) financial and operating performance of the issuers and the rated vessels, (vi) legal constructs, and (vii) the risk that bondholders may accelerate a material amount of debt if Petrobras does not produce audited financial statements in a timely basis;(viii) the risk that the issuers' bondholders may accelerate the outstanding debt principal in case of bankruptcy, insolvency or reorganization, pursuant to the bonds' indentures.

In case of a negative outcome related to the ongoing corruption investigations at Petrobras and/or certain issuers' sponsors, the review will assess the ability of the issuers' sponsors to renew their contracts or continue to provide services to Petrobras pursuant to their respective executed charter and services agreements. We expect that re-chartering risk will be exacerbated by lower market-based daily rates caused by falling oil prices worldwide. The review will assess whether further differentiation among the issuers ratings is deemed necessary based on the specifics of each transaction on an individual as well as on a relative basis.

The principal methodology used in these ratings was Generic Project Finance Methodology published in December 2010. Please see the Credit Policy 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Alexandre G De Almeida Leite
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Chee Mee Hu
MD - Project Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades the ratings of the senior secured notes of Schahin's rated vessels; ratings remain under review for downgrade
No Related Data.
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