Fitch Downgrades QGOG Atlantic / Alaskan Rigs Ltd. Notes to 'BB-'; Outlook Negative
Fitch Ratings downgrades the senior secured notes issued by QGOG
Atlantic / Alaskan Rigs Ltd. as follows:
--Series 2011-1 senior secured notes due 2019 to 'BB-' from 'BB';
Outlook remains Negative.
The notes are backed by the flows related to the charter agreements
signed with Petroleo Brasileiro (Petrobras) for the use of the moored
semi-submersibles Atlantic Star and Alaskan Star. Queiroz Galvao Oleo e
Gas S.A. (QGOG) is the operator of the vessels and QGOG Constellation
S.A. (QGOG Constellation) is the primary sponsor of the transaction.
The downgrade to the senior secured notes reflects the downgrade to
Petrobras (the offtaker) and Fitch's weakening view of the strength of
the offtaker's payment obligation given continued pressure on global
day-rates and asset values caused by stressed oil prices and Petrobras'
willingness to terminate existing charter agreements in the event of a
contract breach.
The ratings continue to benefit from strong asset performance and QGOG's
position as one of Petrobras' top performing service providers, the
underlying long-term contracts, and the credit quality of QGOG
Constellation. The Negative Outlook reflects the Negative Outlook on the
sponsor's rating and the negative environment for offshore drillers,
specifically less attractive demand fundamentals for the underlying rigs.
KEY RATING DRIVERS
-- Petrobras' Credit Quality
On Dec. 17, 2015, Fitch downgraded the foreign and local currency Issuer
Default Ratings (IDRs) of Petrobras to 'BB+' from 'BBB-'. The rating
actions follow Fitch's downgrade of Brazil's sovereign foreign and local
currency IDRs to 'BB+' from 'BBB-'. The Rating Outlook on the sovereign
is Negative. The offtaker's IDR is the starting point for determining
the strength of the offtaker's payment obligation.
-- Fitch's View of the Strength of the Payment Obligation
Petrobras has demonstrated a willingness to terminate existing charter
agreements related to less strategic assets when a termination clause is
breached. Although the Atlantic Star and Alaskan Star have historically
performed well, these second-generation mid-water vessels are older and
less strategic than ultra-deepwater (UDW) rigs and equipment related to
production, and therefore may be more vulnerable to contract
renegotiation or termination. With current market conditions and market
day-rates for newer UDW assets close to the contracted day-rates for the
Alaskan Star and Atlantic Star, Petrobras may approach the operator in
an attempt to restructure certain contracts to reduce expenses over the
medium term. Continued pressure on global day-rates and asset value
caused by stressed oil prices imply a low likelihood that the Atlantic
Star and Alaskan Star would be re-contracted in today's environment
outside of Brazil and underline the importance of a strong operating
performance to avoid any performance-related contract termination.
-- Strong Asset Performance
Both the Atlantic Star and Alaskan Star have returned to normal
operations in line with strong historical performance after suffering
idiosyncratic downtime during the first half of 2015. Uptimes for the
Atlantic and the Alaskan averaged 95% and 92%, respectively, during the
first three quarters of 2015. During 2013 and 2014, performance of both
was excellent, with both vessels recording average uptime levels near
99%. Although both assets have performed well and QGOG is one of the
best operators in Petrobras' fleet, Fitch believes that given the nature
of the assets and the contracted day-rates, these charter and services
agreements are exposed to early termination in the event of poor
performance.
-- Credit Quality of QGOG Constellation
Fitch rates QGOG Constellation 'BB-' with a Negative Outlook. The
transaction is directly and indirectly exposed to the credit quality of
QGOG Constellation as the charter and service agreements have
termination clauses relating to bankruptcy and performance, and
therefore are linked to the credit quality of this entity. Positively,
on Nov. 30, 2015, the company announced that the Brazilian Comptroller
General's Office (CGU; Controladoria Geral de Uniao) decided to exclude
QGOG from the administrative procedure that the CGU initiated in
connection with the Petrobras investigations.
-- Decreasing Leverage Limits Exposure to Stressed Market
Exposure to market day-rates and depressed asset values is mitigated,
since the transaction maintains cash reserves and continues to de-lever
at a relatively fast pace.
RATING SENSITIVITIES
The ratings are sensitive to changes in the credit quality of Petrobras
as offtaker, changes in the credit quality of QGOG Constellation, and
the operating performance of the underlying assets. Additionally, the
ratings are sensitive to changes in Brazilian oil and gas industry
dynamics and overall market dynamics for midwater assets, and Fitch's
perception of the strength of the payment obligation.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to
this rating action.
Additional information is available at www.fitchratings.com.
Applicable Criteria
Criteria for Rating Oil Vessel-Backed Financing in Latin America (pub.
18 Dec 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=834309
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=997100
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=997100
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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