Moody’s, an independent rating agency, has downgraded Australia-based Adani Abbot Point Terminal’s (AAPT) senior secured and senior secured bank credit facility rating to Ba2 from Baa3.
The ratings’ outlook is negative, reviewing the challenging industry conditions, and uncertainty on AAPT’s ability to generate sufficient free cash flows to achieve the deleveraging, since this depends on the ability of the company’s counterparties to honor their take-or-pay contracts.
“The ratings downgrade reflects the increasing likelihood of material volatility in AAPT’s cash flows due to the weakened position of AAPT’s coal mining counterparties, the sole source of such cash flows,” says Mary Anne Low, Moody’s analyst.
“The ongoing severe pressure facing the coal sector translates into an increased likelihood of AAPT’s counterparty contracts either not being renewed or subject to early termination,” Low adds.
With the material challenges facing the coal sector, Moody’s considers that AAPT’s financial leverage and debt coverage metrics are no longer consistent with the previous ratings. According to the rating agency, if an AAPT counterparty defaults, weak coal market conditions will make it challenging for AAPT to secure replacement tonnage on equivalent terms.
The rating also considers the company’s debt maturity profile and associated refinance risk, with around AUD 1.08 billion (more than USD 1.3 billion) maturing in 2018.
If AAPT’s ultimate shareholder implements the necessary countermeasures to reduce the company’s financial leverage and strengthen its capital structure such that FFO Debt remains in the 7-9 percent range and FFO/Interest above 2.4x on a consistent basis, the outlook could return to stable, the agency added.