TEXT-S&P summary: CORES

Wed Nov 28, 2012 5:37am EST

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(The following statement was released by the rating agency)

Nov 28 -

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Summary analysis -- Corporacion de Reservas Estrategicas de Product 28-Nov-2012

Petroliferos

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CREDIT RATING: BBB-/Negative/A-3 Country: Spain

Primary SIC: Sovereign

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Credit Rating History:

Local currency Foreign currency

16-Oct-2012 BBB-/A-3 BBB-/A-3

30-Apr-2012 BBB+/A-2 BBB+/A-2

17-Jan-2012 A/A-1 A/A-1

13-Oct-2011 AA-/A-1+ AA-/A-1+

28-Apr-2010 AA/A-1+ AA/A-1+

19-Jan-2009 AA+/A-1+ AA+/A-1+

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Rationale

The rating on Corporacion de Reservas Estrategicas de Productos Petroliferos (CORES) reflects an equalization with the long-term rating on the Kingdom of Spain (BBB-/Negative/A-3). We consider CORES to be a government-related entity (GRE). In accordance with our criteria for rating GREs we believe there is an "almost certain" likelihood that the Spanish government would provide timely and sufficient extraordinary support to CORES in the event of financial distress.

CORES is a corporation governed by public law, but with a distinct legal status and acting under private law. It conducts its activities under the tutelage of the central government, exercised through the Ministry of Industry, Energy, and Tourism ("the Ministry").

Our opinion of an almost certain likelihood of support reflects our view of CORES':

-- "Integral" link with the Spanish government. CORES is a public-law entity, tightly controlled and supervised by the Spanish Ministry of Industry, Energy and Tourism. We see CORES as an extension of the government, specifically mandated to build up, manage, and control the nation's strategic oil reserves in accordance with EU and international legislation. CORES does not receive funds from the government, nor does it benefit from any explicit guarantee on its liabilities. However, the government provides CORES with what we see as strong ongoing support in the form of a regulatory framework under which oil and gas operators have the obligation to pay whatever fees are necessary to fully cover all of CORES' costs, including debt service. We believe that this framework would safeguard a smooth sovereign takeover of CORES' obligations if needed.

-- "Critical" role as an entity specifically formed to provide a strategic public service on behalf of the Spanish government. CORES has a specific mandate to monitor the level of Spain's oil reserves--virtually all of which come from imports--and ensure that they are sufficient to cover the country's oil consumption needs. Only the government itself would, in our opinion, be able to undertake CORES' mandate.

CORES borrows from local and international financial markets to finance the purchase of oil stocks. Its total debt was EUR1.9 billion on Dec. 31, 2011.

Liquidity

CORES' liquidity is "adequate", as defined in our criteria, given that CORES takes into consideration all of its expenses, including debt service, when determining the annual fees applicable to its members. These fees are typically set with very conservative assumptions about expected expenditures. As a result CORES normally returns excess fees to operators at year end, although it could retain excess fees as reserves if necessary. Fees are cashed in monthly, ensuring regular access to liquidity inflows.

CORES' long-term debt accounts for 86% of its total debt. As of Oct. 5, 2012, CORES had credit lines of EUR305 million, of which EUR51 million were available. CORES faces debt repayments of EUR599 million in 2013--EUR350 million from long-term debt, and EUR249.5 million from the renewal of credit lines.

We understand that CORES has already refinanced its credit lines, which expire in February 2013, using a combination of sources including bank loans, new credit lines, and the sale of excess oil reserves for EUR70.5 million. We expect that CORES will fund its EUR350 million long-term debt maturity, which is due in July, by issuing debt in the capital markets, or signing loans with the banking sector.

CORES may also choose to meet part of its remaining financing needs for the year 2013 by selling additional excess reserves. A drop in petroleum product consumption due to the economic crisis in Spain has left CORES' holding reserves above the legally established limits. Based on current prices, CORES estimates it could receive up to EUR520 million from the sale of these reserves, for which there is a liquid market. CORES can choose how much of the excess to sell and would be legally obliged to use any proceeds from sales to reduce its indebtedness.

Finally, in our view CORES may also decide to set higher fees for its members for the year 2013 to cover all or part of its long-term debt maturities, although we consider it unlikely that CORES would have to resort to this option.

Outlook

The "negative" outlook on CORES primarily reflects that on Spain. A downgrade of the sovereign would also result in a downgrade of CORES.

We might also lower the rating if, contrary to our current expectation, CORES was not able to access funding smoothly through a combination of bank loans or bonds, sale of oil reserves or higher fees to its members, or ultimately the support of the Spanish government.

We believe it is unlikely that the combination of all these alternative sources of funding would prove insufficient to meet CORES' financing needs for 2013.

Related Criteria And Research

-- Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010

-- Spain's Corporacion de Reservas Estrategicas de Productos Petroliferos Downgraded To 'A/A-1' Following Action On Spain, Jan. 17, 2012

-- Spain's Ratings Lowered To 'A/A-1'; Outlook Negative, Jan. 13, 2012

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