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June 12 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings says in a recently published comment that more investors are subscribing to delayed drawdown bonds where they commit to subscribe to bonds periodically throughout the project’s construction phase. This has the advantage of reducing costs of carry compared with a full upfront drawing but places more emphasis on the credit quality of the investor.
The ability of each investor to meet drawdown requirements on a timely basis is critical. The failure of one to meet its obligations in full and on time may mean that the company has insufficient funds to continue construction, leading to default. To assess this risk requires an examination of the investment structure of a particular transaction, which may involve rated or unrated investors, major funds of rated institutions or asset managers investing funds from their own group or from third parties.
Fitch considers a variety of aspects in its analysis such as the investors’ creditworthiness; the size and liquidity position of the underlying funds; the legal and contractual relationships between a manager and the funds it manages; the linkage between an investor and its parent company; and the level of direct or indirect exposure of the investment manager. The agency relies on the issuers to provide this information. Fitch also draws on the expertise of its Insurance and Fund ratings groups as required.
The comment, “Delayed Drawdown Risk in Project Bonds”, is available on www.fitchratings.com or by clicking on the link below.
Link to Fitch Ratings’ Report: Delayed Drawdown Risk in Project Bonds