Fitch Ratings-Singapore-03 May 2021: Portfolio mix, debt structure and financial profile are the key rating differentiators for APAC renewable issuers rated under Fitch Ratings’ Infrastructure and Project Finance Rating Criteria, says the agency in a peer review. The underlying credit assessments of 10 rated portfolios range from ‘bb-‘ to ‘bbb’.
Fitch considers variance in actual performance against expectations, and the spread in energy yield forecasts by third-party experts to assess volume risk and the haircut to apply in production estimates for a wind or solar portfolio.
Fitch’s availability estimates for geothermal projects are driven by operating record, investment plan or take-or-pay arrangements.
Fitch-rated renewable portfolios are either contracted with sovereign-owned entities, Indian state-owned distribution companies, or commercial and industrial customers.
The power purchase agreements (PPAs) with the first two counterparties are usually long-term and fixed-price contracts. PPAs with commercial and industrial customers generally have shorter tenors.
Fitch assesses a portfolio’s cash flow resilience and capacity for debt repayment by evaluating debt service coverage ratios (DSCR), liquidity and leverage.
We usually use the refinance-period DSCR, a more conservative metric, for credit assessment of bullet and partially amortising debt. High average DSCR is driven by better cash generation, longer remaining PPA life, lower debt to be amortised or a favourable refinance rate assumption.
Fitch’s approach towards underlying credit assessment of a portfolio of assets explicitly accounts for the portfolio’s credit strengths and weaknesses, including its own refinancing capabilities, along with sponsors’ track record in accessing capital markets, in the case of bullet bond maturities.
The DSCR-based rating thresholds applied by Fitch vary by portfolio. The thresholds are calculated based on a portfolio’s resource mix (wind, solar or geothermal) and price risk (contracted or merchant).