Fitch Releases Final Criteria for Availability-Based Projects
The main change resulting from the exposure draft is the inclusion of specific guidance regarding the level of all-cost breakeven to achieve a certain rating level. This reflects feedback from several market participants.
Fitch has included breakeven calculations as part of its analysis of availability payment projects; previously no specific guidance had been provided. Specifically, under the revised criteria Fitch's analysis considers the all-cost breakeven as a multiple of the realistic outside cost (ROC) as an additional means to assess a project's financial flexibility. For example, a project with a breakeven of 20% and a ROC of 5 produces a multiple of 4x. Projects that are assessed to have minimal cost risk would require a breakeven ratio with a smaller multiple of the ROC relative to those transactions with higher cost risk.
Debt service coverage ratios were also modified in the revised criteria.
The final criteria report also provides additional clarification on several points made by market participants including exposure to deflation, adequacy of cure periods, quality of relationship between parties, and Fitch's analysis of completion risk.
The implementation of the new criteria is expected to result in limited upward rating migration for some availability-based projects, with rating actions expected within the next 60 days. The updated criteria should be read in conjunction with Fitch's report 'Assessing Cost Risk in PPP Projects', published June 26, 2015 and 'Rating Criteria for Infrastructure and Project Finance', published September 28, 2015.
The full report 'Rating Criteria for Availability-Based Projects' is available at www.fitchratings.com.