Fitch Assigns Tagus STC/Volta IV - Electricity Receivables Securitisation Expected Rating
The transaction is a securitisation of Portuguese electricity tariff deficit (TD) receivables, quantified for the year 2016. Tagus STC, S. A., as issuer, will purchase the TDs from EDP Servico Universal SA (EDP SU; the seller) with the proceeds from the senior notes. EDP SU is a wholly owned affiliate of EDP Energias de Portugal, S. A. (BBB-/Stable/F3).
KEY RATING DRIVERS
2016 TD Legal Framework
The 2016 TD receivables are legally recognised and based on full year estimates produced by ERSE, the industry regulator, in accordance with the legal framework. Any potential deviation between such estimates and actual incurred TD that crystallised during 2016 will not affect the established terms of the 2016 TD receivables; it will instead be managed in subsequent years. ERSE has confirmed through a letter to the seller dated June 2016 the existence, amount and interest rate payable under the 2016 TD receivables.
Regulatory Independence Reduces Risk
The track record of ERSE as the industry regulator, coupled with the absence of adverse government interference, means there is only a remote risk of political intervention affecting TD repayments. For example, access tariffs have been increased on average by 6% per annum over the past three years, reinforcing the agency's view that ERSE demonstrates and acts as a truly independent body.
Total Debt Decreasing
Electricity system regulatory receivables decreased to EUR5.2bn in year-end (YE) YE15 from EUR5.3bn in YE14. Fitch expects this trend to continue as we estimate total debt at approximately EUR4.9bn by YE16 and EUR2bn by YE20; this factors in the effects that policy measures are having on the financial profile of the electricity system.
Stable Rating Outlook
The Outlook on the notes is Stable, in line with the Outlook on the Portuguese sovereign Issuer Default Rating (IDR, BB+/Stable). This is based on Fitch's assessment of the electricity system's key performance indicators (KPIs). An upgrade of the notes' rating would be subject to an improvement in KPIs.
RATING SENSITIVITIES
The rating on the securitisation notes could be downgraded if the system deviates substantially from the sustainability path. A downgrade of the sovereign IDR by two notches or more would automatically result in a downgrade of the notes, as the maximum distance between the ratings of TD securitisations and the sovereign IDR is three notches, as per Fitch criteria. A one-notch downgrade of the sovereign IDR would potentially result in a downgrade of the TD securitisations, unless the assessment of the KPIs was to improve. On the other hand, an upgrade of the notes' ratings would be subject to an improvement in KPIs.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
DATA ADEQUACY
Fitch's assessment of the information relied upon for the agency's rating analysis, according to its applicable rating methodologies, indicates that it is adequately reliable.
SOURCES OF INFORMATION
The information used to assign the ratings was provided by the seller and the arranger.
REPRESENTATIONS AND WARRANTIES
The seller provided the SPV with specific representations and warranties (R&Ws) concerning the characteristics of the TDs, and additionally key transaction parties have provided R&W with respect to their status and authority. The R&Ws are substantially comparable to those typically contained in other global structured finance and European ABS transactions, as described in Fitch's research Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions - Amended, dated 31 May 2016.
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