Scope assigns BBB+ to the senior secured notes issued by Gode Wind 1 Investor Holding GmbH
Scope Ratings GmbH (Scope) has today assigned a rating to the senior notes issued by Gode Wind 1 Investor Holding GmbH (the issuer) as follows:
Senior notes: EUR 556.4m: assigned a rating of BBB+
Ørsted Wind Power A/S (Ørsted) and the issuer each hold an equity stake of 50.0% in an unlimited partnership established under German law to construct and operate an offshore wind farm located in the German North Sea with a total gross capacity of 346.5MW, using 55 Siemens 6.3MW turbines. The issuer is an SPV whose purpose is limited to the management of its 50.0% stake in the unlimited partnership and is in turn owned 50% by Glennmont Partners and 50% by The Renewables Infrastructure Group (the sponsors).
The notes financed the issuer’s 50.0% share of funding obligations alongside a subordinated debt facility provided by the sponsors. The wind farm was mechanically completed in Q2 2016, with final take-over in Q2 2017.
The wind farm holds an unconditional grid connection commitment from the responsible transmission system operator (TSO), TenneT TSO GmbH, and is eligible to receive fixed feed-in tariffs (FiTs) under the German subsidy regime. Ørsted (or an affiliate) managed the wind farm’s construction, acts as an O&M provider, and provides a route-to-market for the electricity produced for a period of 20 years.
The BBB+ rating reflects the total expected loss (EL) of 0.15% over the loan’s life until maturity (equivalent to a 1.88-year constant-exposure expected risk horizon). Key drivers are the low risks during operation, especially regarding the experienced sponsors and operator, and good technical record. Coverage ratios are at the low end of our expectations, but this is mitigated by robust revenue generation, with no merchant power price exposure until the notes’ maturity, and by the low regulatory risk. The project features a fully amortising debt profile followed by a long remaining useful asset life.
Construction risks account for 0.0% of total EL. Construction was completed in Q2 2016, with final take-over in Q1 2017, resulting in no construction risk.
Operational risks account for 18.7% of total EL. The operating track record has been good over the last five years. The largely fixed-fee O&M agreement with Ørsted and the maintenance reserve mitigate operating expenditure uncertainties. Counterparty risk is low due to Ørsted’s strong record, credit standing and significant commitment to the project.
Revenue risks account for 22.1% of total EL. The priority dispatch of electricity, the absence of price risk due to fixed FiTs, and the generally good quality and reliability of the offshore wind resource mitigate the risk of revenue fluctuations, although subject to certain uncompensated events. The strong economic rationale, negligible risk of retroactive regulatory change in Germany, and high barriers to entry compensate for the project’s dependence on subsidies.
Financial strength risks account for 54.1% of total EL. The transaction has coverage ratios at the low end of our expectations for this type of project under our conservative rating case (Scope’s rating case). There is no refinancing risk given the fully amortising structure. The useful economic life following the notes’ maturity is at least 15 years, but positive cash flow generation requires the captured electricity market price to exceed the regulatory floor.
- Project structure and compliance risks account for 5.1% of total EL. The notes may be structurally subordinated to emergency funding from Ørsted, partly mitigated by a contractual cap on servicing such a loan, the robust governance and security framework, and the experienced sponsors and operator, which hold a significant economic interest in the project.
Key rating drivers
Experienced sponsors (positive). All sponsors have good experience, acceptable credit quality with no equity contribution obligation, good technical capabilities, and significant economic incentives.
Low technical operational risks (positive). Ørsted will operate and maintain the project for 20 years from completion. O&M contract prices are largely fixed. The O&M budget includes a maintenance reserve based on the expected variable O&M charges (three-year rolling allocation). The project has a good technical record of operation.
Stable and predictable long-term revenues (positive). There is no price risk due to fixed FiTs during the debt tenor followed by a floor price until operating year 20. The good quality and reliability of offshore wind yield in the German North Sea mitigate resource risk.
No refinancing risk (positive). The notes are fully amortising. The project benefits from a long tail period of 15 years from debt maturity until the decommissioning date. However, positive cash flow generation after debt maturity will rely on captured power prices exceeding the regulatory floor.
Financial underperformance (negative). Financial performance in both 2020 and 2021 was below initial expectations due to the combination of uncompensated grid outages, negative price events and low wind speeds. For the 12 months ending June 2021, the ADSCR of 1.13x was below the lock-up level, although it improved to 1.24x for December 2021.
Significant dependency on subsidies (negative). Low regulatory risks, the strong project rationale and high barriers to entry mitigate the risk of retroactive subsidy cuts. We also note that the project’s competitiveness has improved in the current high power price environment.
Structural subordination (negative). The notes may be structurally subordinated to unforeseen emergency funding from Ørsted, which would be provided to the project should the issuer lose its ability to finance works that are critical to maintaining or restoring operations. This structural feature is mitigated by the cap on servicing such loans, good operating performance, the robust governance and security framework, and the experienced sponsors and operator with a significant economic interest in the project.
Positive rating-change drivers:
- Consistently and significantly higher cash flows than projected, or faster deleveraging compared to Scope’s rating case could result in a rating upgrade. However, the likelihood of such an upgrade is limited.
Negative rating-change drivers:
- Lower energy production or consistently lower cash flows in the operating phase than assumed in Scope’s rating case could lead to a rating downgrade.
Quantitative analysis and assumptions
The total EL on the rated instrument is commensurate with a BBB+ rating. We calculated an EL of 0.15% over the lifetime of the instrument (equivalent to a constant exposure expected risk horizon of 1.88 years) under our rating case scenario (Scope’s rating case), which is more conservative than the sponsor’s base case scenario. Our rating case assumes P90 energy yield, 94.3% park availability, cost inflation of 2.0% p.a., 3.5% losses for uncompensated grid outages and six-hour events, and captured power prices at the floor price of EUR 39/MWh following the FiT period.
We calculated an expected impairment likelihood of 0.50% for this project, commensurate with a PD strength of bbb when expressed using the levels of our idealised PD curves, as per our methodology. The project’s PD strength and EL results from the aggregated risk of the construction and operational phases.
We calculated a total expected recovery rate of 70.5% on credit impairments for the project. The total expected recovery rate is the probability-weighted average recovery rate of all 16 credit impairment events.
We performed a detailed estimation of the expected severity of the three credit impairment events that are most relevant for investors. These are: i) Revenue deterioration; ii) Operational performance; and iii) Debt repayment or cash flow liquidity issues. These three credit impairment events together contribute 77.1% of the EL for investors.
Scope tested the resilience of the rating against deviations of the main input parameters: risk factor scores and expected recovery rates. This analysis has the sole purpose of illustrating the sensitivity of the rating to input assumptions and is not indicative of expected or likely scenarios.
The following shows how the results for the senior notes change compared to the assigned credit rating in the following scenarios:
The model-implied rating would be BB+, or one rating category lower, if all 23 risk factor scores are reduced by one level.
The model-implied rating would be B+, or two rating category lower, if the most relevant risk factor scores are reduced by two levels.
- A 25% haircut to the expected recovery rate implies a rating of BBB.
The offshore wind park produces power without emitting any harmful exhaust gases into the air.
Scope Ratings’ General Project Finance Methodology considers a rating case that embeds stress when compared to the sponsor’s base case. Additionally, the recovery analysis takes into consideration the extreme events in the recovery distribution curves. These elements can be considered a form of stress testing. The stresses of the rating case incorporate haircuts to the cash flows for investors using the project’s financial model.
Scope Ratings stressed the key inputs to the project’s financial model based on the conditions implied by the respective credit impairment event. For example, the stresses applied to estimate the expected recovery rate in revenue deterioration events cover two key revenue drivers: wind turbine availability and grid outages. Scope Ratings derived the expected recovery rate by calculating the net present value of all cash flows available for debt service under the assumptions of the respective most relevant credit impairment event.
Cash flow analysis
Scope Ratings relied on the project’s financial model originally prepared by Global Infrastructure Partners and updated by InfraRed Capital Partners for the cash flow analysis of the transaction. The cash flow analysis incorporates Scope Ratings' own assumptions over the economic life of the project, considering the transaction’s main structural features, such as the bonds’ priorities of payment, the bonds’ notional amount and coupons. The cash flow analysis is used to assess the different risk factors and recovery risk factors as well as to determine the expected recovery of the top three credit impairment events, considered in Scope Ratings' General Project Finance Methodology.
The methodology used for this Credit Rating, (General Project Finance Rating Methodology, 15 November 2021), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings is (Project Finance Expected Loss Model version 1.2), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Rating: public domain, the Rated Entity, the Rated Entities’ Related Third Parties, third parties and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting this Credit Rating originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data. Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Rating and the principal grounds on which the Credit Rating is based. Following that review, the Credit Rating was not amended before being issued.
This Credit Rating is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Rating is UK-endorsed.
Lead analyst: Marton Zempleni, Senior Analyst
Person responsible for approval of the Credit Rating: Torsten Schellscheidt, Executive Director
The Credit Rating was first released by Scope Ratings on 29 April 2022.
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.
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