Approximately $575 million of debt securities affected
New York, December 06, 2012 -- Moody's Investors Service has assigned a Baa2 rating to México Generadora de Energía, S. de R.L. ("MGE" or "Project") issuance of $575 million senior secured notes due 2032. The rating outlook for MGE is stable.
The Baa2 rating reflects the construction and operation of two substantially identical natural-gas fired power plants, each with a net generation capacity of approximately 250MW, for a total of 500MW(the "Project") utilizing commercially available technology by experienced developers, contractors and operators, where payment terms are governed by an electric energy self-supply agreement ("ESSA") between MGE, two affiliated off-takers (also affiliates of Minera México (Baa2, stable)), and Minera México, as guarantor, for the entire capacity of the plant through the term of the debt, covering debt service, and fixed and variable costs, including major maintenance. The rating also incorporates the economic rationale of the project as a form of electricity cost savings to the sponsor/off-takers, the construction already being underway for a significant portion of the plant, the importance of the project to Minera México's mining operation, and abundant economical fuel resources' availability. The rating further reflects robust debt service coverage ratio (DSCR) metrics of 1.43 times on average which are expected to remain resilient to a variety of stress scenarios as the fixed capacity charges and fixed and variable energy charges are sized to fully cover debt service, all actual operating and maintenance costs and provide a return on capital.
Construction risk is mitigated by the existence of two fixed price, date certain EPC contracts with Siemens Energy, Inc. and Siemens Innovaciones, guaranteed by Siemens Corp (wholly-owned subsidiary of Siemens AG rated Aa3, stable), and include a fairly standard menu of liquidated damage payments for delays. Construction risk is further mitigated by the requirement that the off-takers begin making fixed capacity payments on the date-certain Longstop Scheduled Commercial Operations Date irrespective of actual plant completion. Upon completion, the project will be operated by a wholly-owned subsidiary of Gas Natural (Baa2, negative) under a 16-year agreement, with all costs passing through the ESSA.
The project also includes typical project finance features including a first priority security on all tangible and intangible assets and equity interests pledged through a trust, cash flow waterfall, and offshore construction, IDC, revenue, debt service and reserve accounts. There is also a six-month debt service reserve and limited liquidity retained in the project in between semi-annual distributions.
The rating is tempered by the single asset nature of the project and its direct link with Minera México's performance as a large global mining concern which can also be accompanied by sector related volatility, along with this project being the sponsor's first significant power plant undertaking. The rating also incorporates the remote risk of non-payment during an extended period of force majeure affecting MGE's ability to operate such as a strike by unionized labor at the plant, which is partially mitigated by limited liquidity, business interruption insurance to be acquired for the operational phase, and an eventual termination payment covering principal and accrued interest. Conversely, in the event of a force majeure affecting the off-takers, fixed capacity payments would still have to be made.
MGE's stable rating outlook reflects the expectation that the ongoing construction will be completed on time and on budget based on highly regarded experienced contractors during the construction period compounded by overall adequate industry contractual arrangements including insurance, delay and performance guarantees. The outlook also incorporates the expectation of stable operations of the project resulting in a steady DSCR of 1.43x on average.
The rating is highly dependent upon the financial performance of the off-takers' guarantor, Minera México. Upon completion of the construction, should the guarantor rating be upgraded, consideration of an upgrade at MGE may be warranted.
MGE's rating could be downgraded if the project incurs delays or material problems during construction period, required permits are not provided on time, the project becomes uneconomical for the sponsor, or operating period DSCR drops below 1.40 times. Given the reliance on Minera México, if the rating of Minera México were to be downgraded or if the rating outlook changed to negative, a similar rating action would occur at MGE.
For more information on Minera México, the guarantor of the ESSA, please refer to the most recent credit opinion, which can be found on moodys.com.
For more information on MGE, please refer to the most recent credit opinion, which can be found on moodys.com.
The principal methodology used in this rating was Power Generation Projects published in December 2008. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
MGE is a special purpose vehicle ~99% indirectly owned by Grupo México, S.A.B. de C.V. ("Grupo México", and "Sponsor"), formed to develop, construct, own, operate and maintain two substantially identical natural-gas fired power plants, each with a net generation capacity of approximately 250MW, for a total of 500MW (the "Project") in the City of Nacozari de Garcia, in the state of Sonora in northern México.
Once built, all of the Project's electrical output is to be delivered to two affiliated offtakers: Mexicana de Cobre, S.A. de C.V. ("MexCobre") and Buenavista del Cobre, S.A. de C.V. ("Buenavista" and, together with MexCobre, the "Consumer Partners" or "offtakers"), both entities existing under the laws of México, under a long term electric energy self-supply agreement (the "ESSA"). The Consumer Partners are 100% owned by Minera México S.A. de C.V. ("Minera México", Baa2/stable), which is 100% owned by Southern Copper Corporation ("SCC", Baa2/stable), majority owned by Grupo México.
The Project is already under construction. Design, procurement, construction, commissioning, and testing is to be undertaken by Siemens Energy Incorporated and Siemens Innovaciones, S.A. de C.V. (collectively, the "ES&C Contractor", both 100% owned subsidiaries of Siemens AG rated Aa3/stable) pursuant to fixed price, turnkey, engineering, procurement and construction contracts. The Facility is being built in two phases, with construction of Phase I and II approximately 89% and 55% complete respectively as of October 31st 2012. Operación y Mantenimiento Energy México, S.A. de C.V., is a wholly-owned subsidiary of Gas Natural SDG, S.A. and will serve as the operator under a 16-year agreement.
The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.
Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Jennifer Chang Analyst Project Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Chee Mee Hu MD - Project Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATIONS") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND MOODY'S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED,DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT.
All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error negligent or otherwise or other circumstance or contingency within or outside the control of MOODY'S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY'S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation of each security it may consider purchasing, holding or selling.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.
MIS, a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Shareholder Relations -- Corporate Governance -- Director and Shareholder Affiliation Policy."
Any publication into Australia of this document is by MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657, which holds Australian Financial Services License no. 336969. This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001.
Notwithstanding the foregoing, credit ratings assigned on and after October 1, 2010 by Moody's Japan K.K. ("MJKK") are MJKK's current opinions of the relative future credit risk of entities, credit commitments, or debt or debt-like securities. In such a case, "MIS" in the foregoing statements shall be deemed to be replaced with "MJKK". MJKK is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO.
This credit rating is an opinion as to the creditworthiness or a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be dangerous for retail investors to make any investment decision based on this credit rating. If in doubt you should contact your financial or other professional adviser.