Fitch Rates Trinidad Generation Unlimited's Proposed Notes 'BBB-(EXP)'

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings has assigned a 'BBB-(EXP)' rating to Trinidad Generation Unlimited's (TGU) proposed notes due 2027.

KEY RATING DRIVERS

TGU's rating primarily reflects its stateownership as well as its strategic importance to the country's energy matrix. Additionally, the rating is supported by highly stable cashflows generated under a long-term PPA with a tolling structure that eliminates commodity risk exposure.

Government Ownership & Operational Linkage

Trinidad Generation Unlimited (TGU) is indirectly controlled by the Government of the Republic of Trinidad & Tobago through Union Estate Electricity Generation Company Limited, an entity formed expressly to hold the government's shares in TGU. Additionally, TGU's sole offtaker and fuel supplier, Trinidad and Tobago Electricity Commission (TTEC), is owned by the government. The company's water supply is also guaranteed by another government controlled entity, the Water and Sewage Authority of Trinidad and Tobago.

The presence of government authorities as both offtaker, subsidized supply of gas and water, as well as sponsor to the project is evidence of the strategic importance of the asset and alignment to the sovereign's overall objective to maintain low energy prices as a competitive edge for private investment.

Long-term PPA Provides Cashflow Predictability

TGU's PPA with TTEC established a 30-year energy supply agreement, of which approximately 25 years still remain, beyond the life of the proposed issuance. The bulk of the company's revenues are generated from the capacity payments (~99% of revenues) with energy sales making up the balance. Its capacity payments assume plant availability of 93%, allowing the company a cushion of approximately 5% planned maintenance and 2% unplanned shutdowns. For availability below 93%, the company still receives a prorated capacity payment. In four of the last five years, TGU has achieved availability factors above 93%.

Tolling Structure Eliminates Commodity and Volumetric Risks

Under the terms of the PPA, fuel and water supply are guaranteed by the government, and supply interruption of either one has no effect on TGU's receipt of capacity revenues. Moreover, as fuel is supplied and guaranteed by TGU's offtaker, TTEC, payment and delivery of that fuel is entirely TTEC's obligation. Fuel purchases do not flow through TGU's financial statements. This ensures predictable cashflows even during periods of high commodity volatility.

Adequate Credit Metrics for its Operating Profile

The company's leverage is consistent with investment grade peers that operate under toll-based revenue schemes and that have little or no market based risks, such as electric transmission companies, pipelines and LNG terminals. As of FY2015, the company had gross leverage of approximately 6.5x. Under Fitch's forecast assumptions, this ratio should rise to around 7.0x through the medium term. The proposed $600 million bond issuance will extend TGU's maturity profile to an average life of 10 years. The company's cash flow predictability will provide more than adequate debt service coverage of around 2.5x until the bond begins amortizing in 2025.

KEY ASSUMPTIONS

--Annual CPI growth of 1.5%

--Energy demand in line with GDP forecast

--Average billable availability of around 91%

--Major maintenance in 2017

--100% of previous year's net income paid as dividends

RATING SENSITIVITIES

Factors that could lead to a downgrade include: weaker sovereign indicators; material de-linkage from the government; substantially lower availability factors in conjunction with major unplanned maintenance expense resulting in a debt service coverage ratio below 1.50x on a sustained basis; dividend distributions that significantly weaken overall liquidity.

A positive rating action would be possible if there is material improvement in the country's overall economic condition and debt relative debt levels.

LIQUIDITY

As of year-end 2015, the company held USD95 million in cash and equivalents. At these levels, pro forma interest coverage would be in excess of 2.6x. Barring major unexpected maintenance expense, Fitch generally expects cash to remain at these levels through the medium term, supported by the high margins and cashflow predictability afforded under TGU's PPA.

FULL LIST OF RATING ACTIONS

Fitch has assigned the following rating:

Trinidad Generation Unlimited

--Proposed senior unsecured notes due 2027 'BBB-(EXP)'.

Date of Relevant Rating Committee: Oct. 14, 2016

Additional information is available on www.fitchratings.com.

Applicable Criteria

Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016)

https://www.fitchratings.com/site/re/885629

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1013386

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013386

Endorsement Policy

https://www.fitchratings.com/regulatory

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.

The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

View source version on businesswire.com: http://www.businesswire.com/news/home/20161019006533/en/