Fitch Affirms CE Oaxaca Cuatro, S. de R.L. de C.V.'s Senior Secured Notes at 'BBB-'

Fitch Ratings affirms the 'BBB-' rating on CE Oaxaca Cuatro, S. de R.L. de C.V.'s (Oaxaca IV) USD150.2 million (USD144.5 million outstanding) senior secured notes due 2031. The Rating Outlook remains Stable.

The affirmation reflects the project's operational and financial performance over Fitch's base for 2014, due to improved wind supply coupled with significant expense savings against the budget, and a satisfactory 2015 to date. The Stable Outlook incorporates the view that cash flows are to remain solid, supported by a fixed-price contract with an investment-grade counterparty.

KEY RATING DRIVERS

--Moderate Operation Risk [Operation Risk - Midrange]: The rating reflects the risks inherent to the operation of a relatively recently opened facility over the long term. In its favor, it benefits from proven turbine technology, and initial technical support from the manufacturer. Given that the project's operation and maintenance are provided by related company AE Mex Global, S. de R.L. DE C.V. (AEMex), Fitch considers that there are heightened incentives for the sponsor to assure the facility's operational continuity.

--Low-Variability Wind Resource [Revenue Risk: Volume - Midrange]: The non-diversified, single-site nature of the project is partially mitigated by its location at a region that benefits from an attractive wind resource and where energy generation probability scenarios were based on almost 10 years of long-term reference data on-site or nearby. In its financial analysis, Fitch takes into account the potential for lower wind conditions that could negatively affect output.

--Fully Contracted Revenues [Revenue Risk: Price - Stronger]: 100% of energy generated is contracted under a 20-year fixed-price Power Purchase Agreement (PPA) with an investment-grade off-taker. There are no penalties if production is lower than expected, which effectively mitigates revenue risk. Mexico's Federal Electricity Commission (CFE) is the government-controlled power utility in Mexico (Foreign Currency Long-term Issuer Default Rating [IDR] 'BBB+'/Stable Outlook).

--Back-Ended Amortization [Debt Structure - Midrange]: The amortization schedule establishes that more than 40% of the debt will be paid in the final five years of the tenor, which could potentially worsen a trend of rising costs or underperformance at the end of project's life. Structural features such as distribution tests as well as the project's resilience to significant O&M cost increases contribute to mitigate such risk.

--Mid-Range Financial Performance: Leverage is moderate. Debt service coverage ratio (DSCR) is projected to remain consistent with minimal deviations from the average over life of the debt. Under Fitch rating case conditions, which contemplate higher O&M costs combined with reduced energy production, DSCR is expected to average 1.35x, with a minimum of 1.33x. Coverage levels are in line with Fitch's applicable criteria and other similarly rated transactions by Fitch.

PEERS

--Oaxaca IV's leverage at 7x Debt-to-EBITDA is in line with Peruvian project Energia Eolica, also rated at 'BBB-'; Stable Outlook, at 8x. Rating case DSCR is comparable as well, as it averages 1.32x for Energia Eolica and 1.35x for Oaxaca II. Most key rating factors assessments for the two projects are similar, at generally midrange levels.

RATING SENSITIVITIES

--Positive: Greater than expected wind resource volatility coupled with adequate expense control.

--Negative: Consistent performance below the P50 levels.

--Negative: Expenses persistently higher than expected especially if, all other variables kept stable, costs constantly surpass budget by double-digit deviations.

--Negative: Downgrade of CFE's current rating to a rating level below 'BBB-'.

CREDIT UPDATE

The project's cash flows have been and are expected to remain solid. Revenues are solely derived from the electricity rendered under the purchase power agreement (PPA) with exclusive off-taker CFE, at a fixed pre-defined price of USD68.7 per megawatt hour (MWh) in 2015, which increases annually up to USD108.7/MWh in 2031 and is partially readjusted by the U.S. Producer Price Index.

In contrast to the previous year, 2014's operational performance was over Fitch's base case expectations, mainly due to improved climatic conditions. Wind capacity factor surpassed the forecast (51.68% versus 49.74%) and resulted in revenues slightly higher than Fitch's base projection. In addition, turbine average availability above expectations (98.72% versus 96.00%) and significant cost savings contributed to higher than expected cash available for debt service.

In 2014, total expense was USD5.1 million, compared to the USD9.3 million budgeted, and cash available for debt service reached USD25.9 million, resulting in a 2.12x natural coverage, higher than the 1.70x estimated under Fitch base case. This ratio was calculated based on the information of the 'DSCR Calculation Certificate' provided by the company pursuit to the Indenture.

According to management, the difference between actual and expected costs is a result of a very conservative initial budget, with no maintenance activity having been delayed to yield such outcome.

As of the first quarter of 2015, operational figures have surpassed Fitch's original base case. Three-month (January-March) average was 99.67% versus 96.00% for turbine availability, and 68.91% versus 49.74% for plant capacity factor. This equated to 153,559 MWh production, over the 112,271 MWh that was estimated.

Starting in 2014, the turbine maintenance expense is paid by the project and no longer by the EPC contractor. No impact is foreseen on coverage ratios, though, given that the amortization schedule was designed taking this into account.

Current balance in reserve funds is USD6.1 million for the debt service reserve account and USD4.4 million for the O&M account, in line with the established target balances.

Fitch's Base Case assumed IE's P50 10-year capacity factor, 96% turbine availability, 0% increase to O&M budget, and 3% net generation reduction to all years, in order to reflect the potential for additional forecast error in the wind study and the impact of occasional reliability issues. Under this scenario, debt is fully paid, and DSCR is 1.43x minimum and 1.59x on average. Loan Life Coverage Ratio (LLCR) is 1.68x.

Fitch's Rating Case adds additional stresses to the base case by including IE's P90 one-year capacity factor, 96% turbine availability with 1% decrease every two years following year 15, 7.5% increase to the O&M budget for years one to 15 and 12.5% for years 16 to 20, and 3% net generation reduction to all years. The results were DSCRs of 1.33x minimum and 1.35x average; LLCR is 1.43x.

Oaxaca IV is a Mexican special purpose vehicle (SPV) created by Acciona Energia Mexico, S. de R.L. de C.V. (AEM)to own and operate a 102-megawatt (MW) wind farm located in the Isthmus of Tehuantepec in Oaxaca, in southern Mexico. It is an indirect subsidiary of Acciona, S.A. (Acciona), one of the largest Spanish private groups whose core businesses are infrastructure, water and renewables.

The facility reached commercial operation on March 5, 2012 with a demonstrated capacity of 103.7 MW. It comprises 68 1.5-MW turbines manufactured by related company Acciona Windpower, S.A. (AWP), which has installed over 2,500 similar units reaching 3,750 MW with a global average fleet availability of over 98%.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (July 11, 2012);

--'Rating Criteria for Onshore Wind Farm Projects' (May 14, 2015).

Applicable Criteria and Related Research:

Rating Criteria for Onshore Wind Farm Projects

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865785

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985260

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