OREANDA-NEWS. Fitch Ratings has downgraded the senior secured notes issued by SBM Baleia Azul, S.a.r.l. (SBM Baleia) as follows:

--Series 2012-1 senior secured notes due 2027 to 'BBB-' from 'BBB'.

Fitch has also placed the notes on Rating Watch Negative.

The notes are backed by the flows related to the charter agreement signed with Petroleo Brasileiro S.A. (Petrobras) for the use of the floating production storage and offloading unit (FPSO) Cidade de Anchieta for a term of 18 years. SBM do Brasil Ltda. (SBM Brasil), the Brazilian subsidiary of SBM Holding Inc. S.A. (SBM), is the operator of the FPSO. SBM is the sponsor of the transaction. The FPSO Cidade de Anchieta began operating at the Baleia Azul oil field in September 2012.

The rating action follows Fitch's downgrade of Petrobras, the offtaker of the transaction. The Rating Watch on the SBM Baleia notes reflects the placement of Petrobras' Issuer Default Ratings (IDRs) on Rating Watch Negative.

KEY RATING DRIVERS

Downgrade of Petrobras: On Feb. 3, 2015 Fitch downgraded the IDRs for Petrobras to 'BBB-' from 'BBB' and placed the ratings on Rating Watch Negative. Petrobras' rating is the implied rating cap for the transaction, as the offtaker represents the source of cash flow generation. The downgrade reflects the increased and prolonged uncertainty regarding Petrobras' ability to estimate and record an adjustment to its fixed assets on a timely manner, which could allow a significant portion of Petrobras' creditors to accelerate debt payments. The rating actions also reflect the potential impact the current corruption scandal may have on Petrobras' ability to hit Fitch's production expectations. The Rating Watch Negative reflects heightened risk that the company's debt could be accelerated if it is not able to provide year-end audited financial statements within 120 days of the period's end, plus a 60-day grace period.

Quality of the Sponsor: SBM Offshore N.V. is the ultimate parent to SBM. The transaction benefits from SBM Offshore N.V.'s solid revenue growth, global leadership in leasing FPSOs and overall strong operational performance (over 99.1%) of its fleet.

Strength of Contract: Cidade de Anchieta benefits from a long-term charter agreement with Petrobras expiring in 2030. While an ongoing investigation related to certain SBM contracts with Petrobras may have a negative impact on SBM's future business within Brazil, Fitch believes that Cidade de Anchieta remains a valuable asset for Petrobras and will not likely be affected by the investigations. The FPSO's daily production has averaged approximately 85,000 barrels, about 4% of Petrobras' production. Given the limited alternative use of the FPSO, the strength of the contract and the attractiveness of the oil field to Petrobras are important considerations.

Cashflow Stability: The long-term contract supporting the transaction is not exposed to contract renewal risk. Rates are fixed and are not exposed to market day rates.

RATING SENSITIVITIES

The rating may be sensitive to changes in the credit quality of Petrobras as charter offtaker and any deterioration in the credit quality of SBM as operator and sponsor. In addition, the transaction's rating is sensitive to the operating performance of the FPSO Cidade de Anchieta.