Mediaboss Marketing

SAO PAULO--(BUSINESS WIRE)--

Fitch Ratings expects to assign the following rating to the proposed issuance of notes by Schahin II Finance Company (SPV) Ltd. (the Issuer), a company setup in the Cayman Islands (Cayman):

--USD730 million senior secured notes, 'BBB-(EXP)'; Outlook Stable.

Fitch's expected rating addresses the likelihood of timely payment of interest on a semi-annual basis and the ultimate payment of principal by legal final maturity in September 2023. This expected rating does not incorporate Fitch's full legal analysis as this process is currently ongoing.

The notes are backed by the flows related to the charter agreement signed with Petroleo Brasileiro S.A. (Petrobras) for the use of the dynamically positioned ultradeepwater drillship called 'Sertao' for the term of 10 years. Schahin Petroleo e Gas S.A. (Schahin P&G), oil and gas arm of Brazilian-based Schahin Group (Schahin), is the operator of the drillship and primary sponsor of the transaction. The Sertao vessel is the seventh oil rig expected to become online within Schahin's fleet. The proceeds of the issuance will in large part be used to refinance a loan taken to pay the Samsung Heavy Industries Shipyard for construction of the vessel.

Deutsche Bank Trust Company Americas, as indenture trustee on behalf of the noteholders, will be assigned a collateral package that includes a pledge of the shares of Dleif Drilling LLC (Dleif), owner of the vessel, as well as a mortgage on the rig.

Fitch considered the following factors in its credit analysis: the strategic importance of the Brazilian oil and gas industry, Petrobras' role as off-taker to the charter agreement (Petrobras Issuer Default Rating [IDR] 'BBB'), the quality of Schahin P&G as sponsor of the transaction and operator of the rig, overall leverage and liquidity, and the structural protections in place, among other factors.

Asset quality analysis considered the strategic importance of the local oil and gas industry to the Federal Government of Brazil and Petrobras' investment plans. The industry is considered of extreme importance for the economic growth of the country and should provide a stable credit environment for companies operating in this segment. These consequently mitigate potential decreases to the market value of the Brazilian-operated vessels.

Construction of the vessel is complete. Sertao left the Samsung shipyard in Geoje, South Korea on Feb. 26, 2012. Samsung is a leading shipyard in the construction and development of drillships. The Sertao rig, and its sister rig Cerrado, are the 2nd and 3rd drillships of the 10,000E Design to be delivered by Samsung to be operated by Schahin (the Cerrado rig is being financed through another facility. Excess cash flows, or residual flows, of that facility have been assigned to the Issuer). The Vitoria drillship (not part of this transaction), also of the 10,000E Design, has been operating since March 2011, and shows adequate uptime levels. Schahin shows high historical uptime performance on its rig portfolio. Nonetheless, its non-investment grade credit profile may affect its ability to service and maintain the vessel as well as support the transaction financially if needed.

On a net debt basis, Fitch's adjusted valuation of the drillship indicates an initial loan-to-value (LTV) of 66% and an average LTV of 41.7% throughout the transaction's life. Cash flows from the Sertao agreements are expected to generate debt service coverage ratios (DSCRs) of 1.28 times (x) under a 95% base case uptime assumption. Reserves in the amount equivalent to USD70.8 million will be funded at closing, of which approximately USD23 million seek to mitigate acceptance and performance ramp-up risks and are released upon satisfactory uptime performance.

Read more:
Fitch Expects to Rate Schahin II Finance Company (SPV) Ltd. Notes 'BBB-(EXP)'; Outlook Stable