OREANDA-NEWS. Fitch Ratings has affirmed Andromeda Finance S. r.l.'s Class A1 notes' underlying rating and class A2 notes at 'B' and revised their Outlooks to Positive from Stable. Fitch has also affirmed class A1 notes' at 'A-'/Stable. This rating indirectly benefits from SACE's (A-/Stable) unconditional and irrevocable guarantee.

The ratings and Outlooks reflect Andromeda's lower dependence on 14% merchant exposure and the project's current ability to service its debt service commitments solely based on EUR318/MWh feed-in-tariffs (FIT) under Fitch's base case. An updated independently confirmed production forecast based on six years of P50 outperformance has led to stronger financial metrics. The average/median/minimum rating case debt service coverage ratio (DSCR) has improved to 1.15x/1.13x/1.05x relative to the average DSCR of 1.00x and minimum of 0.92x in the previous review.

KEY RATING DRIVERS

Minimal Exposure To Merchant Risk. Revenue Risk (Price) - Midrange: We have revised the assessment to Midrange from Weaker as result of the project's resilience to low market prices. Under our updated base case assumptions, the project breaks even relying only on payments from fixed FIT. Approximately 86% of total project revenues under Fitch's base case stem from the EUR318/MWh FIT under the Italian regulatory framework for solar plants (Conto Energia). The remaining revenue is generated from electricity sales at market prices, which averaged EUR43.3/MWh during the 12 months ending June 2016. Both revenue streams are received from the Italian public authority Gestore Dei Servizi Energeticci.

P50 Outperfomance Independently Confirmed. Revenue Risk (Volume) - Midrange: In July 2015, management commissioned an update on energy production levels based on Andromeda's actual operating data. As a result, we have revised our production estimates upwards. The new P50 production curve is closely aligned with measured average yearly production to date, while the new 1YP90 is around 2.5% below the historical minimum on an annual basis. The difference between new P50 and 1YP90 has decreased to 6% from 9% due to increased certainty on the solar resources.

Established and Straightforward Technology. Operating Risk - Midrange: The monocrystalline photovoltaic (PV) panel technology is well established and operating requirements for the PV plants are straightforward. SunPower is the equipment manufacturer and the operator. SunPower is regarded as a sub-investment grade counterparty, but it is a reputable and experienced contractor. Despite the company's continuous efforts to optimise costs in order to achieve greater savings over the long term, costs over the 12 months ending March 2016 exceeded management's initial expectations by 5%. Fitch understands that the increase was driven by higher administrative costs, which represent a one-off item and are largely associated with consultant and legal fees post-retroactive actions taken on the project.

Securitisation Distances Debt Holders from Cash Flows. Debt Structure - Midrange: The transaction is a project finance structure with some elements of a securitisation, which positions the noteholders further away from the cash flows generated at the project company level. The debt terms are relatively straightforward, with two fixed rate fully-amortising senior tranches ranking pari-passu, no floating interest rate risk and no refinancing risk.

Improved Coverage. Debt Service: The company reported an average DSCR of 1.08x as of September 2015 and 1.10x as of March 2016, which are above Fitch's base case expectations of 1.02x - September 2015 and 1.06x - March 2016.

Under Fitch's rating case projections, Andromeda's DSCR profile is 1.13x (median) and 1.05x (minimum). The projected debt metrics have improved in comparison to the last review, where the average DSCR under Fitch's rating case was 1.00x and minimum 0.92x. This improvement has mainly been driven by the updated production estimates for 1YP90 and lower opex projections. We expect a further improvement in cash flows following the considerable reduction in Italian property tax (Imposta Municipale Propria), retroactively applied from January 2016.

The transaction has been in distributions lock-up since 30 September 2014. Fitch expects average DSCR metrics to be restored above the covenanted levels in September 2016.

Peers:

Solar Star (BBB-/RWN) is a US-based mono-crystalline PV plant with total capacity of 579MW. Unlike Andromeda Solar Star does not bear price risk, which is mitigated by fixed-price, 20-year power purchase agreements with Southern California Edison (SCE, A-/Stable). Solar Star's DSCR under the rating case is 1.32x.

RATING SENSITIVITIES

Negative: A projected rating case DSCR consistently below 1.05x, possibly resulting from low power prices, low energy production, higher costs or material adverse changes in the regulatory framework affecting PV installations may lead to negative rating action.

Positive: A projected rating case profile DSCR around 1.15x, equivalent to an actual of approximately 1.25x DSCR, may result in an upgrade.

SUMMARY OF CREDIT

The transaction is a securitisation of two project loans (Facility A1 and Facility A2) under law 130/99 (the Italian securitisation law). The loan facilities were extended by BNP Paribas and Societe Generale to Andromeda PV S. r.l. (the project company) to build and operate two PV plants of 45.1MW and 6.1 MW in Montalto di Castro, Italy. The terms of the loans effectively mirror those of the rated notes, with payments under Facility A1 and Facility A2 servicing the class A1 notes and class A2 notes, respectively. The class A1 notes' rating and Outlook reflect the first-demand, irrevocable and unconditional guarantee provided by SACE. The guarantee provided by SACE to the issuer is in respect of the project company's obligations under Facility A1 and not on the class A1 notes directly.