Rating Action Overview
- On Nov. 11, 2021, S&P Global Ratings revised the outlook on AusNet Transmission Group Pty Ltd. (AusNet), a subsidiary of AusNet Services Ltd., to negative reflecting the immediate risks to its capital structure from a potential ownership change.
- AusNet, the operation and maintenance provider to Rowville Transmission Facility Pty Ltd., remains an irreplaceable counterparty, in our view, that caps the rating on Rowville.
- Consequently, on Nov. 15, 2021 we revised our outlook on Rowville to negative from stable and affirmed our 'A-' rating.
- The negative outlook on Rowville primarily reflects potential downward rating pressure from a similar action on AusNet.
Project Description And Key Credit Factors
Rowville Transmission Facility Pty Ltd. owns, operates, and maintains a 500 kilovolt (kV)-to-220 kV step-down transformers and an associated switchyard (transmission facility) in the eastern suburbs of Melbourne. Rowville's step-down transformer and associated switchyard receive power from generators in the La Trobe Valley through three 500 kV lines, and then step the power down to 220 kV and connect to AusNet's 220 kV transmission station.
Strengths
- Stable availability-based revenue stream under contract with the Australian Energy Market Operator, with no market risk.
- The principal counterparty and operation and maintenance (O&M) provider, AusNet, has strong credit quality and Rowville passes on all costs to AusNet.
- Rowville has limited exposure to underperformance or economic risk.
Risks
- Exposure to single-site transmission asset constrains the rating.
- Rowville's comfortable cushion in the debt service coverage ratio, with back-ended debt repayment supports its credit quality.
Rating Action Rationale
The negative outlook on Rowville primarily reflects the outlook on its O&M provider, AusNet, which we consider to be an irreplaceable counterparty for this project and difficult to replace. The project has strong-linkages through the presence of a cross-default provision, whereby a default under the O&M agreement will trigger an event of default under the debt documentation. Furthermore, all operating costs, capital expenditure, and insurance requirements associated with Rowville are passed through to AusNet under the O&M agreement.
Consequently, any downgrade of AusNet would trigger a similar rating action on Rowville.
Downside risk on AusNet can arise from immediate risks to its capital structure from a potential ownership change in the next six to 12 months. The extent of the rating impact on AusNet, and therefore on Rowville, will be driven by AusNet's future capital structure, financial policies, growth strategy, and parent support under new ownership (see "AusNet Services Ltd. Outlook Revised To Negative On Potential Ownership Change; 'A-' Rating Affirmed," Nov. 11, 2021.)
Outlook
The negative outlook on the ratings on Rowville's fully amortizing, consumer price index-linked senior secured debt primarily reflects the negative outlook on the rating on AusNet.
We expect that the asset will continue to operate at a high level of reliability, supporting its stable cash flows and financial metrics. We expect the debt service coverage ratio to gradually dip from just below 1.9x currently, to about 1.58x at maturity, as debt service costs increase toward the back-end of the contract term.
Downside scenario
The rating on Rowville could be lowered if the rating on AusNet were to be lowered. Given that a default under the O&M agreement would trigger an event of default under the finance documents and create a cross-default between the operator and Rowville, the rating on Rowville's debt is capped at the rating on AusNet.
Upside scenario
A revision of outlook on Rowville would only follow a similar action on AusNet.
Ratings Score Snapshot
Operations phase SACP (senior debt)
- Operations phase business assessment: 4
- Preliminary SACP: a
- Downside impact on preliminary SACP: a
- Liquidity: Neutral
- Comparative analysis assessment: Neutral
- Adjusted preliminary operations phase SACP: a
- Operations counterparty ratings adjustment: a-
- Financial counterparty ratings adjustment: None
- Operations phase SACP: a-
Modifiers (senior debt)
- Parent linkage: De-Linked
- Structural protection: Neutral
- Senior debt issue rating: A-
Related Criteria
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- Criteria | Structured Finance | General: Counterparty Risk Framework: Methodology And Assumptions, March 8, 2019
- Criteria | Corporates | Project Finance: Project Finance Framework Methodology, Sept. 16, 2014
- Criteria | Corporates | Project Finance: Project Finance Operations Methodology, Sept. 16, 2014
- Criteria | Corporates | Project Finance: Project Finance Transaction Structure Methodology, Sept. 16, 2014
- Criteria | Corporates | Project Finance: Key Credit Factors For Power Project Financings, Sept. 16, 2014
- General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
- Criteria | Corporates | Project Finance: Project Finance Construction And Operations Counterparty Methodology, Dec. 20, 2011
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
Related Research
- AusNet Services Ltd. Outlook Revised To Negative On Potential Ownership Change; 'A-' Rating Affirmed, Nov. 11, 2021
Ratings List
Ratings Affirmed | |
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Rowville Transmission Facility Pty Ltd. |
|
Senior Secured | A- |
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Primary Credit Analyst: | Harshvardhan D Sathe, Melbourne + 61 (3) 96312118; Harshvardhan.Sathe@spglobal.com |
Secondary Contacts: | Sonia Agarwal, Melbourne + 61 3 9631 2102; sonia.agarwal@spglobal.com |
Parvathy Iyer, Melbourne + 61 3 9631 2034; parvathy.iyer@spglobal.com |
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