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TEXT-Fitch updates infrastructure and project finance criteria
(The following statement was released by the rating agency)
July 12 - Fitch Ratings has updated its Global Rating Criteria for Infrastructure and Project Finance. The criteria report replaces the existing criteria published on 16 August 2011. The update does not change the essential methodology used by Fitch, but extends the discussion of certain risk attributes. Fitch does not expect the changes to have a material impact on ratings.
The criteria describes the analytical framework Fitch uses to assign or monitor ratings for debt instruments where repayment is dependent upon cash flows from the construction and operation of a standalone project or public infrastructure facility.
It is the foundation piece for individual sector criteria published for eight broad sectors including toll roads; airports; ports; thermal power; wind farms; solar power; U.S. sports facilities; and availability payment based infrastructure.
Fitch identifies ranked credit attributes for qualitative analytical factors. The rankings are indicative of the agency's analytical views of selected credit attributes from a wide range of project types and provide qualitative guidance in assessing the attributes present in a project. Investment-grade ratings are typically associated with projects, structures and instruments displaying predominantly stronger or mid-range attributes described in the report combined with metrics consistent with ratings at that level.
Fitch identifies the following key rating drivers for ratings in infrastructure and project finance:
Completion Risk: Where material to the rating, Fitch evaluates risks which may cause the project not to be completed on time, on budget, and/or up to the performance standards assumed for the operating period credit profile. Fitch considers the contractors, cost structure, delay risk, technology risk, and other terms of the construction phase contracts.
Operation and Revenue Risks: Fitch's analysis addresses the SPP's ability to generate a stable cash flow based on its legal framework and fundamental economics, The agency evaluates the operating, cost, demand, revenue and infrastructure renewal risks at the SPP.
Debt Structure: Financial analysis considers each of the SPP's rated debt instruments separately, taking into account the debt structure, including priorities, amortisation, maturity, interest risk and associated hedging, liquidity, reserves, financial covenants, and triggers in the context of the project's operating environment.
Debt Service and Counterparty Risk: Cases are developed to assess the level of financial flexibility a project demonstrates as it encounters stress reasonably expected to occur over the relevant forecast period. Metrics are used to evaluate the SPP liquidity profile and overall leverage. Counterparty risk (off-takers, concession grantors, warranty providers, etc.) is assessed for its impact on the rated debt.
Structure and Information: Any additional risk or risk mitigation flowing from the quality and experience of sponsors, strength of legal structure or and the quality of information is considered.
Macro Risks: Country risk factors, reflected in sovereign ratings, industry specific risks and the SPP's exposure to event risks and mitigants to such risks are factored into the final rating
The criteria report is used in conjunction with any relevant project sector or asset class specific criteria, published at www.fitchratings.com. Sector- or asset-specific criteria may provide indicative metrics and stress levels, additional factors, attribute expectations or specific methodologies.
Link to Fitch Ratings' Report: Rating Criteria for Infrastructure and Project Finance
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