In this project finance transaction (hereinafter, PFT), two rated tranches (class A, class B) and one unrated tranche (class C) have been issued.
ACRA has assigned the definitive credit rating of A+(RU) to the class A structured collateralized notes with coupon payment at a rate linked to the LGO2 index calculated by the trading system administrator when determining the tariff for capacity. Maturity date: February 15, 2031, issue volume: RUB 4.7 bln.
ACRA has assigned the definitive credit rating of BBB+(RU) to the class B structured collateralized notes with coupon payment at a rate according to the LGO index calculated by the trading system administrator when determining the tariff for capacity. Maturity date: February 15, 2031, issue volume: RUB 0.9 bln.
1 Full name in accordance with the decision to issue: structured documentary interest-bearing non-convertible notes collateralized by monetary claims to the bearer with mandatory centralized storage.
2 LGO – the average yield of long-term government obligations used in calculating the price of capacity for power suppliers.
SFO RuSol 1 LLC (hereinafter, the Issuer) issued the structured notes in order to refinance bank loans issued for the construction of two solar power plants (SPP) in the Astrakhan region (Project company No. 1 and Project company No. 2, hereinafter, the Project Companies) as part of Government Ordinance No. 449, dated May 28, 2013, (as amended on September 27, 2018) “On stimulating renewable energy sources in the wholesale market of electric energy and capacity.”
The Issuer issued three tranches of structured notes with a total volume of RUB 5.7 bln in order to provide the Project Companies with loans collateralized by the following assets:
As part of the PFT, the Issuer, Project Companies, and Operator have entered into a direct agreement stipulating that the Operator will continue to provide operational services according to the terms of the current contract.
The notes are collateralized by the Issuer with (1) pledged receivables with respect to accounts assigned by the Project Companies to the Issuer as part of its loans and (2) property of the Project Companies provided to the Issuer under loan agreements, as well as pledged receivables under the Issuer's bank account agreement.
The Issuer uses cash flow from proceeds under the loan agreements for coupon payment and repayment of the nominal value of the issued notes.
The key risk of this PFT is the non-performance of contractual obligations under the loan agreements between the Issuer and Project Companies. ACRA has based its rating analysis on a wide range of quantitative and qualitative factors, including:
The assets are not exposed to construction phase risks. The production assets consist of a fully constructed and operational solar park in the Astrakhan region, which is distributed between the two companies and has a total installed capacity of 30 MW:
All permits and certificates required by legislation for the sale of electricity and capacity in the wholesale market for electricity and capacity (the WMEC) as a generating facility operating based on renewable energy sources (RES) have been obtained.
The predictability of incoming cash flow in this PFT is guaranteed by signed PPAs (qualified generating facilities operating based on RES). These PPAs are long-term contracts with residual maturities of more than 10 years concluded between the power generator and the major players of the WMEC for the purchase of power at a state-regulated tariff. The tariff is formed in such a way that during the term of the contract investors are fully reimbursed the amount of invested capital at the established rate of return. This takes into account the compensation of the Project Companies’ operating costs and reimbursement of property and profit taxes.
According to project documentation, if one of the Project Companies defaults, a cross-default occurs under the loan agreements, which may represent a default event on the transaction. However, the second Project Company will continue to operate and may therefore be a source of recovery.
The Project Companies produce electricity and capacity for organizations operating in the first price zone of the WMEC (more than 250 major consumers of electricity in Russia, including enterprises in the Astrakhan region, for example PJSC “Astrakhan Power Company,” and other regions in the European part of Russia and the Urals). In addition, each buyer in the wholesale market, as part of its obligation to purchase power, must enter into a contract for the purchase of a certain share of RES power proportional to the volume of its peak electricity demand3.
All electricity and capacity generated is supplied to Russia’s unified energy system, where buyers consume the necessary volume. Therefore, payment obligations on electricity and capacity generated by the SPPs are distributed among the buyers of the first price zone.
The power sold under PPAs is paid for by consumers in priority order, which eliminates the possibility of generated power not being sold. This minimizes the market risks of the Project Companies, as well as demonstrates their strong competitive position throughout the amortization period of the rated debt. Moreover, the Project Companies should be able to maintain their stable positions in the long term (PPAs cover the notes’ maturity).
According to the technical advisor’s opinion, the probability of the solar modules failing within the established warranty period of 25 years is minimal provided the manufacturer's requirements on the operating conditions are met.
The technologies and equipment are widely used in the construction and operation of solar power plants around the world. According to ACRA, this significantly minimizes the risk of the Project Companies failing to meet the power generation (output) objectives and the subsequent decrease in cash flow in this PFT.
In its rating analysis, ACRA conducted a number of stress tests to assess the level of the discrepancy between the Issuer's assets and liabilities.
(1) Pledge of all production assets and rights under all contracts within the project;
(2) Restrictions on attracting financing that would lead to increased debt for the Project Companies, as well as on dividend payments;
(3) Debt service reserves at the SPV level (4.7% of the nominal value of the rated tranches), as well as a mechanism to retain excess profits at the Project Company level, ensuring that the debt service coverage ratio (DSCR) is above 1.2x in ACRA’s base case scenario.
Moderate value of the main financial indicators of the Project Companies.
Moderate assessment of covenant package quality.
The Project Companies have to adhere to the following financial metrics:
Net debt/EBITDA of no higher than 5x. There are no limitations on maintaining a minimum DSCR (according to ACRA’s methodology, the standard level of this covenant should exceed 1.05x). In ACRA’s opinion, a total absence of this trigger is usually associated with projects of a relatively low credit quality. ACRA took this factor into account when modeling the transaction, which was then taken into account when setting the assessment score for this sub-factor.
The Issuer is a bankruptcy-remote special purpose vehicle operating in accordance with the requirements of Federal Law No. 379-FZ, dated December 21, 2013, “On amending certain legislative acts of the Russian Federation.”
The definitive credit ratings reflect ACRA’s opinion on the potential expected losses for investors by the notes’ legal maturity. ACRA carried out the analysis in two stages as per the Methodology for Assigning Credit Ratings to Project Finance Instruments and Obligations on the National Scale for the Russian Federation. In the first stage, ACRA analyzed the credit quality of the Project Companies4. In the second stage, the results of the analysis were used as inputs to model the structure of the Issuer’s obligations and determine expected losses for the rated notes. This took into account the influence of credit quality support mechanisms, projected loss recovery, and other factors that influence the distribution of cash flows in the PFT.
4 According to Clause 2.2 of the Decision on Issue, the recognition of Project Companies as bankrupt and the opening of bankruptcy proceedings against them leads to the occurrence of a “write-off event,” meaning the right of the noteholders to receive the nominal value of the notes depends on the occurrence or non-occurrence of project default (the full definition of default is given in the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities).
In this PFT, two rated tranches of structured notes (class A and class B) and one unrated tranche (class C) have been issued.
5 See Clause 9.2.2 of the Decision on the Issue.
A positive or negative rating action may be prompted by the following events:
The definitive credit ratings have been assigned on the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings to Project Finance Instruments and Obligations on the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit ratings have been assigned to the structured collateralized notes issued by SPV RuSol 1 LLC for the first time. ACRA expects to review the credit ratings within one year following the publication date of this press release.
The credit ratings have been assigned based on the data provided by SPV RuSol 1 LLC, information from publicly available sources, as well as ACRA’s own databases. In ACRA’s opinion, the information used in the rating analysis was reliable and sufficient for the application of the methodology.
The credit ratings are solicited, and SPV RuSol 1 LLC participated in the rating process.
ACRA provided no additional services to SPV RuSol 1 LLC. No conflicts of interest were identified in the course of the credit rating process.
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