Fitch Ratings has affirmed the ratings of
The Outlook is Stable.
The company's rated debt includes the following bonds:
AUD100 million Series 2014B US private placement notes due 2024;
AUD152 million Series 2015B US private placement notes due 2027; and
RATING RATIONALE
AquaSure's concession, ending in 2039, provides stable cash flow from the state of
KEY RATING DRIVERS
Revenue from Strong Counterparty: Revenue Risk - Stronger
The water desalination project does not face price or volume demand risk. AquaSure receives monthly payments from the state in return for operating and maintaining the project, regardless of whether the state calls upon the plant to produce water. Contractual provisions establish strong performance incentives for AquaSure, with robust cure periods for non-performance. The risk of revenue abatement due to a failure to meet water production or other requirements is effectively passed through to a third-party operator, subject to a cap.
Cost Risk - Midrange
Overall cost risk considers scope risk, cost predictability and volatility as well as structural protections. These are detailed below.
Moderately Complex Maintenance: Scope Risk - Midrange
The project is subject to full operation and maintenance (O&M) as well as lifecycle cost risks. However, this is mitigated by the moderate complexity of the maintenance required and the state absorbs the risk of non-performance by the electricity provider.
Proven Technology and Experienced Operator: Cost Predictability - Stronger
The operator has strong experience of the same asset type and jurisdiction. The technology is established and performance has consistently been high, which mitigates the lack of benchmark analysis from a technical advisor (TA). The plant is built with 8% excess nameplate capacity above 150 gigalitre (GL) water requirement. Energy efficiency was also significantly better than target levels during the production period by around 20%. The TA advised that an O&M cost with around 25% of margin allowance is adequate to meet potential abatement and there is a large pool of experienced contractors available to step in, if necessary.
Cost Pass-Through Available: Cost Volatility and Structural Protection - Midrange
The project benefits from the allocation of O&M and lifecycle responsibility to a joint venture of Suez and
State Support Reduces Refinancing Risk: Debt Structure - Midrange
AquaSure executed a refinancing package with the state in 2019, whereby the
AquaSure's strong access to debt markets is also evident from the AUD350 million raised via a 10-year fully amortising bank facility in
PEER GROUP
Meridian has a similar cost risk assessment, but we assess cost predictability as 'Midrange' against 'Stronger' for AquaSure, due to the upward revision of the lifecycle profile highlights. AquaSure also has a substantially higher minimum and average rating-case DSCRs than Derby. These strengths result in a rating for
The Carlsbad desalination plant (
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Inability to successfully deliver water orders to the state due to operational or other issues;
Projected average DSCR over the life of the debt consistently below 1.30x
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Debt amortisation occurring faster than Fitch expects, raising the projected average DSCR over the life of the debt above 1.40x.
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
TRANSACTION SUMMARY
AquaSure designed, built, financed, operates and maintains a 150GL a year desalination plant located in the state of
CREDIT UPDATE
AquaSure successfully completed its water delivery requirement (125GL) for the financial year ended
FINANCIAL ANALYSIS
Fitch's base case assumes that the plant produces at full output and that minor revenue abatement is incurred at the P50 level, as advised by the technical consultant, but the abatement is fully passed through to the operator. AquaSure's assumptions are used for operating and capital expenditure. The base case results in an average DSCR of 1.42x during the debt life, with a minimum DSCR of 1.29x.
Fitch's rating case imposes more conservative assumptions, with no pass-through of abatement or higher costs to the operator. All operating and lifecycle costs are increased by 7.5% above the base-case assumptions for the life of the project, except the costs for power and renewable energy certificates, which are fixed under a contract with
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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