(The following statement was released by the rating agency)
Nov 28 -
Summary analysis -- Corporacion de Reservas Estrategicas de Product 28-Nov-2012
CREDIT RATING: BBB-/Negative/A-3 Country: Spain
Primary SIC: Sovereign
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+
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
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
-- "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.
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
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
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
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
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