Fitch Affirms Tagus Volta I, II and III; Outlooks Stable
OREANDA-NEWS. Fitch Ratings has affirmed the ratings of Tagus Volta I, II and III securitisation notes, at 'BBBsf' with a Stable Outlook. Tagus Volta I, II and III Electricity Receivables are securitisations of the electricity tariff deficit (TD) incurred in Portugal during 2010-2014.
KEY RATING DRIVERS
Key Performance Indicators (KPIs)
Leverage and debt service coverage KPIs of the Portuguese electricity system have performed as expected, due to the electricity system debt stabilisation at EUR5.3bn since end-2014 and are expected to gradually improve over the next few years, supported by economic recovery and the on-going impact of the recent reforms. Fitch estimates the ratio between the euro balance of electricity TD and annual regulated revenues of the electricity system (ie. leverage) at 130%-140% between 2015 and 2016. The ratio between TD annual debt service and annual regulated revenues (ie. coverage) is at 34%-47%.
Tariff Increases Compensate
While national demand for electricity grew only 0.3% as of 2015 in volume terms, the electricity regulator (Entidade Reguladora dos Servicos Energeticos (ERSE)) raised access tariffs by 6% as of December 2015, providing visibility to regulated revenues for the immediate future. In Fitch's view, ERSE's decision underlines the independent profile and powers of the industry regulator, one of the key pillars that support the rating profile of TD securitisations.
Commitment to System Sustainability
Fitch believes that the Portuguese government's commitment to reduce the system imbalances will support the electricity system's sustainability over the medium term. The liberalisation of the electricity sector, the cost reduction measures taken in 2012 and 2013 (in excess of EUR3bn), the higher-than-expected increases of access tariffs and growth in electricity consumption, albeit modest, are having a cumulative positive impact on the system.
The notes' ratings are influenced by the sustainability of the electricity system from a credit perspective, the stability of the legal framework affecting TDs, and the macroeconomic outlook affecting electricity consumption. The rating on the notes could be downgraded if the electricity system deviates substantially from the sustainability plan, or its legal framework is weakened.
Fitch believes the projected levels of KPIs on electricity TD do not support more than a two-notch uplift from the Portuguese sovereign rating (BB+/Positive/B). A one-notch upgrade of the sovereign could result in an upgrade of the notes. Similarly, a one-notch downgrade of Portugal rating could result in a downgrade of the notes, providing the Portuguese electricity system KPIs remain stable. In either case, the rating action would not be automatic but would depend on Fitch's analysis of the Portuguese electricity system.
A downgrade of Portugal's sovereign rating by two notches or more would result in a downgrade of the notes, given the maximum distance allowed between TD securitisation ratings and that of the sovereign, under Fitch's Criteria for Portuguese and Spanish Utility Credit Rights, is three notches. Fitch uses the sovereign rating as an anchor because the sovereign rating generally captures macroeconomic risk drivers of electricity demand, such as GDP growth, unemployment or industrial production.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch has checked the consistency and plausibility of the information it has received about the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.
Prior to the transactions' closing, Fitch did not review the results of a third party assessment conducted on the asset portfolio information.
Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
SOURCES OF INFORMATION
The sources of information used to assess these ratings were monthly investor reports provided by Deutsche Bank.
REPRESENTATIONS AND WARRANTIES
A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for the asset class is available by accessing the appendix that accompanies the initial new issue report (see Tagus, STC S.A. / Volta Electricity Receivables Securitisation - Appendix dated May 2013, Tagus, STC S.A. / Volta II Electricity Receivables - Appendix, dated April 2014 and Tagus, STC S.A. / Volta III Electricity Receivables - Appendix dated March 2015 at www.fitchratings.com). In addition refer to the special report "Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions" dated 12 June 2015 available on the Fitch website.