OREANDA-NEWS. January 26, 2016. Fitch Ratings has affirmed Reventazon Finance Trust's (RFT) US\\$135 million fixed-rate notes as follows:

--US\\$135 million fixed-rate notes at 'BBB-'; Outlook Negative.

The transaction is backed by a 100% participation interest in the Inter-American Development Bank's (IDB) B-Loan acquired through a participation agreement. Since IDB continues to be lender of record for this loan, Fitch believes the transaction benefits from IDB's de-facto preferred creditor status.

The B loan is part of the secured debt which finances the design, on-going construction, future operation and maintenance of ICE's 305.5MW hydropower plant Reventazon in Costa Rica (the project). The project has been structured so that ICE assumes all construction and operation.

Fitch's rating addresses timely payment of interest and ultimate payment of principal at legal maturity and does not include any potential acceleration amounts.

KEY RATING DRIVERS

Costa Rica's Credit Quality

On Jan. 20, 2016, Fitch affirmed Costa Rica's Long-Term Foreign Issuer Default Rating (FC IDR) at 'BB+'; Outlook Negative. Costa Rica's ratings are underpinned by its strong structural features relative to peers in terms of high per-capita income, social development indicators and governance, as well as the continued success of its economic model centered around high value-added service and manufacturing activities, which are boosted by strong foreign direct investment inflows. The Negative Outlook reflects adverse public debt dynamics, driven by large fiscal deficits, and legislative gridlock preventing progress on reforms to correct fiscal imbalances in a timely manner.

IDB's Preferred Creditor Status

Historically, sovereigns have prioritized certain obligations, such as those from multilateral development banks (MDBs), when the government cannot service all of the country's external debt. While the B-loan is not a direct obligation of the sovereign, Fitch believes treatment of the IDB as a preferred creditor extends to ICE as the debtor, since ICE is a strategic government-owned entity that receives underlying sovereign support.

As of November 2015, Costa Rica's total multilateral debt as a percentage of total government external debt was approximately 30.1% compared to 31.1% as of December 2014, which is considered significant to the country's external liabilities. However, when comparing the multilateral debt to total government debt (domestic and external), the ratio has stayed close to 7.7% (vs 7.5% in Nov-14), which is considered small for the overall debt of the country and in line with the rating of the fixed-rate notes.

ICE's Involvement in the Project

At closing, ICE entered into a Capital Contribution and Project Fund Agreement (CCPFA) that contractually requires ICE to pay to the local trust all cash contributions necessary for the project to reach commercial operations, including cost overruns and/or payments on the secured debt. ICE signed a lease agreement (LA) that requires ICE to make lease payments, six months in advance, to cover all the local trust's operating and financial expenses regardless of (Reventazon) plant performance.

ICE acts as the project's contractor and operator. Fitch views the credit risk of the local trust as ICE's credit risk. As of 3Q2015, overall work progress was 94.42%, compared to a programmed work progress of 97.50%.

ICE's Linkage to Costa Rica Sovereign

ICE's credit quality is supported by the company's linkage to the sovereign rating of Costa Rica, which stems from the government's ownership, its strategic position as the country's largest electricity company, and the government's implicit and explicit support.

Liquidity Buffer

The notes benefit from a debt service reserve account equivalent to the next principal and interest payment due amount. This liquidity provides certainty in case the transaction is exposed to temporary liquidity shock. As of Sep-2015, account balance stands at close to US\\$12.0 million, which covered for Nov-15 interest payment and a six months contingency reserve with respect to the IFC Loan and the IDB Loans.

RATING SENSITIVITIES

The rating of fixed-rate notes is sensitive to the ratings of Costa Rica and ICE. A change in Fitch's assessment of the credit quality of these entities would result in a change in the rating of the fixed-rate notes. The rating of the fixed-rate notes may also be sensitive to Fitch's view of the IDB as a preferred creditor to Costa Rica.

DUE DILIGENCE USAGE

No third-party due diligence was provided to or reviewed by Fitch in relation to this rating action