Fitch Ratings has taken the following rating actions on EIG's Global Project Fund II (GPFII):
--Class B-1 floating-rate notes downgraded to 'CCsf' from 'CCCsf;
--Class B-2 fixed-rate notes downgraded to 'CCsf' from 'CCCsf';
--Class C floating-rate notes downgraded to 'Csf' from 'CCsf';
--Class D floating-rate notes affirmed at 'Csf'.
Following the full principal repayment of the class A2 notes during 2015, the class B notes became the senior-most class in the capital structure and have since received approximately $9 million (12% of previous outstanding balance). As of April 2016, the outstanding balance of total notes is $102.27 million, composed of (i) class B1 notes at $53.7 million, (ii) class B2 notes at $12.3 million, (iii) class C notes at $26.5 million, and (iv) class D notes at $9.7 million.
Fitch's rating actions on the classes B, C and D reflect the following: (i) as the transaction is approaching its maturity date (June 2016), these classes are exposed to a certain level of market risk, as assets must be sold prior to their maturity; and (ii) increasing obligor concentrations, as the portfolio continues to consist of three performing and two defaulted assets (same credit quality as last review).
GPF II is a securitization of project finance loans, mostly senior secured obligations from originators in the energy and infrastructure sector. As of April 2016, the portfolio consists of three performing and two defaulted assets with principal balance of $111.6 million, and only $49.4 million performing, located mainly in Mexico and the U.S.
One of the performing assets, Corona Trading Corporation, is expected to fully pay on April 30, 2016, which will reduce the balance of the most senior notes by approximately $5.4 million.
KEY RATING DRIVERS
--Increased Market Risk Exposure:
As the transaction is approaching legal maturity, the exposure to assets maturing after 2016 has increased. As a result, classes B, C and D are more dependent on the actual liquidation value and the ability of the portfolio manager to sell the long-dated assets prior to the maturity of the notes. At fair market prices (as of December 15), and considering the sale of most assets prior to the maturity of the notes, class B notes could be paid in full but will depend on the execution price. On the other hand, if assets were to be sold at current market prices prior to the maturity of the notes, funds will not be enough to pay fully class C and class D notes, therefore default is imminent.
--Higher Obligor Concentration:
The underlying portfolio continues to have an increasing obligor concentration as a result of assets amortizing and the notes approaching legal maturity. The portfolio comprises only three performing and two defaulted assets. The exposure to a small number of assets carries the risk that portfolio performance may be adversely impacted by a few assets that may underperform expectations based on ratings and debt characteristics.
RATING SENSITIVITIES
The ratings of the notes may be sensitive to recovery expectations and the execution price on the sale of the long-dated assets prior to the maturity date of the transaction.
Additional information is available at www.fitchratings.com.
Sources of Information:
The sources of information used to assess these ratings were provided by EIG Global Energy Partners.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868
Criteria for Rating Securitizations in Emerging Markets (pub. 06 Nov 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=809588
Global Rating Criteria for CLOs and Corporate CDOs (pub. 12 Nov 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873664
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1003683
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003683
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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