OREANDA-NEWS. Fitch Ratings has revised the Outlook on Tagus Volta I and II Electricity Receivables Securitisations to Stable from Positive and affirmed the ratings at 'BBBsf'.

Tagus Volta I and II Electricity Receivables are securitisations of the electricity tariff deficit (TD) incurred in Portugal during 2012 and 2013, including 2010-2012 system adjustments.

KEY RATING DRIVERS
Outlook Revised to Stable
The revision of the Outlook to Stable from Positive reflects the deterioration in forecasted key performance indicators (KPIs) versus our previous assessment. An upgrade of the notes' rating would be subject to an improvement in the KPIs. As such, an upgrade of the Portuguese sovereign IDR (BB+), which currently serves as a rating anchor to the notes, would not necessarily trigger an automatic upgrade of the notes.

System Imbalances
The revision of the Outlook to Stable is also due to the quantification of system imbalances, in the form of TDs and deviations, mainly caused during 2013 and 2014 by the abnormal weather conditions which triggered higher special regime subsidies. Fitch believes that new gross TDs will be generated until 2018, as system regulated revenues will not be sufficient to fully cover system regulated costs (including scheduled amortisation of debt originated in prior years). Fitch expects total system debt (TDs and deviations) to peak in 2015.

Commitment to System Sustainability
Fitch believes that the Portuguese government's commitment to reduce the system imbalances will enable the electricity system to reach sustainable levels in the medium term. Measures taken in 2012 and 2013 (in excess of EUR3bn) together with higher than expected increases of access tariffs and modest growth in electricity consumption, will have a cumulative positive impact on the system.

Regulatory Independence Reduces Risk
The track record of Entidade Reguladora dos Servicos Energeticos (ERSE - the regulator), coupled with the absence of previous government interference, means there is only a remote risk of political intervention affecting the repayments. The rise in access tariffs above 6% in each of the last two years has reinforced our perception that ERSE's is a truly independent body.

RATING SENSITIVITIES
The notes' rating is based on the sustainability of the electricity system and the stability of the legal framework. The rating on the notes could be downgraded if the system deviates substantially from the sustainability plan. These drivers are more relevant than the Portuguese sovereign IDR, as reflected by the Stable Outlook on the notes and Positive Outlook on the Portuguese sovereign.

A downgrade of Portugal's sovereign rating by two notches or more would automatically result in a downgrade of the notes. This is because Fitch believes that the maximum distance between the ratings of an electricity tariff deficit securitisation and the rating of the relevant sovereign is three notches. Fitch uses the sovereign rating as an anchor because the sovereign rating generally captures macroeconomic risk drivers that are relevant for electricity demand, like GDP growth, unemployment or industrial production.

A one-notch downgrade of Portugal would result in a downgrade of the notes, providing the Portuguese electricity system remained stable. This is because the current KPIs do not support more than the current two-notch uplift.