Fitch affirms Peru LNG at BB-; assigns negative outlook

CHICAGO: Fitch Ratings has affirmed Peru LNG S.R.L’s (PLNG) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BB-‘.

The Rating Watch Negative has been removed, and a Negative Outlook has been assigned. The rating also includes PLNG’s USD940 million senior unsecured notes due 2030.

PLNG’s Ratings and Negative Outlook reflects weaker operational performance given the declining international prices for natural gas, and consequent higher leverage due to decreasing EBITDA generation.

Per Fitch’s recently updated Oil & Gas Price Deck reflecting a slight upward trend scenario for Henry-Hub (HH) and depressed National Balance Point (NBP) indexes, materially higher leverage has been forecast for PLNG, with net leverage metrics expected to reach a peak of 17.0x during 2020, and remain above 8.0x during 2021, exacerbating the company’s cash flow volatility. Fitch expects PLNG’s net leverage to reach 5.0x during 2023, in line with international gas prices recovery.

Fitch believes lower international gas prices should result in a slower deleverage trajectory for Peru LNG than initially expected for the next few years and then decreasing as bond start amortizing. Fitch expects PLNG will remain with adequate liquidity, offsetting the high leverage during 2020-2021.

As of June 2020 PLNG, reported USD163 million of cash on hand, with an additional USD75 million on committed undrawn credit line facility, covering annual interest payments of roughly USD50 million of PLNG’s outstanding USD940 million notes. Going forward, Fitch expects PLNG to not distribute any dividends over the rating horizon, combined with EBITDA to Debt Service to average approximately 0.9x during the amortization period, and that PLNG is expected to build up its cash position over the next few years to cover the shortfall in debt service, as the notes amortization payments start in September 2024.

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