CE Oaxaca Cuatro, S. de R.L. de C.V. #BBB-# Debt Rating Affirmed, Outlook Remains Positive

Stocks and Financial Services Press Releases Tuesday May 22, 2018 09:42
MEXICO CITY--22 May--S&P Global Ratings

MEXICO CITY (S&P Global Ratings) May 21, 2018--S&P Global Ratings affirmed its 'BBB-' debt rating on CE Oaxaca Cuatro S. de R.L. de C.V.'s (Oaxaca IV or the project's) $150.23 million, fixed-interest (7.25%) senior secured bonds due December 2031. The outlook remains positive.

Oaxaca IV is a 102 megawatt (MW) wind farm located in the Isthmus region of Tehuantepec in the state of Oaxaca, 17 kilometers away from the Pacific Coast. The wind farm is comprised of 68 wind turbines laid out in three sections, which Spain-based engineering, construction, and concession company Acciona. S.A. indirectly owns.

The positive outlook reflects the possibility of an upgrade in the next 12 months if the project continues to strengthen its credit metrics, reaching a minimum debt service coverage ratio (DSCR) near 1.60x. This could occur if Oaxaca IV's operating and administrative costs continue to decrease in line with our expectations. We attribute the cost savings to the experienced operator and sponsor of the project--Acciona Energía Mexico (AEM)--that has demonstrated significant gains in efficiency and synergies in the region. Given our projected costs based on the latest available information from the Independent Engineer and the revenues based on a P90 wind generation, we expect a minimum DSCR of 1.62x in 2031.

This is despite the project's DSCR of 1.53x in 2017, slightly weaker than our expectations, mainly because several earthquakes that damaged some of Comision Federal de Electricidad's (CFE's) substations including the one in Ixtepec, to which Oaxaca IV transmits power. As a result, CFE's Ixtepec substation worked at 50% of its capacity between September and first half of October and 90% from November 2017 until June 2018. This limited Oaxaca IV's power production at 380,931 megawatts per hour (MWh), 23% lower than in 2016, and even lower than the projected 394,463 MWh under P-90 one-year (P-90 1Y) assumption. We expect the substation will to be at 100% capacity starting in June 2018. We expect the availability rate for Oaxaca IV's wind turbines to reach 96% starting in the second half of 2018. Given that, under the power purchase agreement (PPA) contract, the maintenance of the substation depends on the project, the latter filed a claim to the insurer, Aon Gil y Carabajal S.A., for the lost revenue because of the earthquakes. As of this report's date, Oaxaca IV is still waiting for the resolution of the claim.


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