Duff & Phelps Assigns 'BBB-' Rating to Compania Mega S.A. Project Financing

Strategic Insights -

The Duff & Phelps Credit Rating Co. (DCR) has assigned a 'BBB-' (Triple-B-Minus) rating to the US$685 million senior notes due 2013 and floating-rate bank notes issued by Compania Mega S.A. (Mega) to finance the construction and operation of a gas separation plant, pipeline, and fractionation facility in Argentina. The project, a US$685 million gas separation and fractionation facility, will produce 562,000 MT of ethane, 369,000 MT of propane, 242,000 MT of butane, and 223,000 MT of natural gasoline annually. The financing includes US$685 million in senior debt, with US$485 million financed by senior bank debt and the remaining US$200 million by notes due in 2013.

Key Takeaways:

  • The assigned credit rating reflects the sovereign risks of Argentina and Brazil, the primary factors in the rating, with the project's location in Argentina being the primary risk.
  • The project's construction risk is mitigated by fixed-price turnkey contracts with an experienced group of contractors, including JGC Corporation, Comercial del Plata Construcciones, S.A. (CPC), and Saipem S.p.A. (Saipem).
  • The production offtake risk is mitigated by long-term offtake agreements with Petroquimica Bahia Blanca S.A.I.C. (PBB) and Petrobras, which terminate no earlier than 2017.
  • Fuel supply risk is mitigated by YPF's obligation under a long-term gas supply agreement to deliver-or-pay the required amounts of natural gas for the project's fuel supply.
  • Operating risk is mitigated by YPF's technical expertise as the operating partner, combined with additional support from Technipetrol.
  • The project's total capital structure is heavily leveraged with approximately 80 percent debt and 20 percent equity, with a six-month debt service reserve account of approximately US$36 million available as a last resort for any debt service shortfall.

Statistics:

  • The project will produce 562,000 MT of ethane, 369,000 MT of propane, 242,000 MT of butane, and 223,000 MT of natural gasoline annually.
  • The debt service coverage ratio falls to an average of 1.75 times with a minimum of 1.17 times under stress cash flow projections.
  • The project will have a debt service coverage ratio of 2.44 times annually on average and a minimum of 1.88 times with historical back-cast prices for both commodities and natural gas base price.

Sources:

  • Duff & Phelps Credit Rating Co. (DCR)
  • Compania Mega S.A. (Mega)
  • YPF S.A. (YPF)
  • Petroleo Brasileiro S.A. (Petrobras)
  • Dow Chemical (Dow)
  • JGC Corporation
  • Comercial del Plata Construcciones, S.A. (CPC)
  • Saipem S.p.A. (Saipem)
  • Petroquimica Bahia Blanca S.A.I.C. (PBB)