KBRA Affirms A+ Rating for State of Louisiana Economic Damages Revenue Bonds (TIFIA); Outlook is Stable
21 Nov 2024 | New York
KBRA affirms its long-term rating of A+ for the State of Louisiana Economic Damages Revenue Bonds (TIFIA), with a final maturity of September 1, 2033. The Outlook remains Stable.
The long-term ratings reflect the business and financial risk profile of BP p.l.c. (“BP”, or the “Company”), and the payment of Deepwater Horizon Economic Damages proceeds (“Damages”) by BP Exploration & Production Inc. (“BPXP”). Such Damages secure debt service on the State of Louisiana (the “State”) Deepwater Horizon Economic Damages Revenue Bonds and TIFIA Loans (the “Bonds”; TIFIA is the “Transportation Infrastructure Finance and Innovation Act of 1998”). BP guarantees these payments per a 2015 Settlement Agreement but does not guarantee the TIFIA debt. KBRA’s evaluation of BP figured prominently into the rating.
The ratings further reflect KBRA’s view that debt service payments receive material support from the legal structure established by the Bonds’ statutory framework, Act 443 of the State’s 2019 Regular Legislative Session (“Act 443”, or “the Act”), and related financing documents. This support includes grace periods for payment of Damages, the State’s transfer of the following year’s full debt service requirement to the trustee within five business days of the Damages deposit into the Escrow Fund, and a first lien pledge of Damages to debt service. Additional factors considered by KBRA in the ratings include the relatively short, 10-year remaining tenor of the bonds and loans, and the overall size of the Damages, which KBRA considers nominal when compared to BP’s overall financial capacity.
Key Credit Considerations
The rating actions reflect the following key credit considerations:
Credit Positives
- Magnitude of BP’s revenue, cash flow, and liquidity sources relative to BP’s obligation to pay the Damages and other Deepwater Horizon settlements, as well as BP’s vertical integration and ability to shift cash internally.
- Material protection of debt service payments after receipt of Damages by the legal and debt structure, including the first lien pledge and relatively short tenor of the Bonds.
- Public purpose of the Damages to fund key improvements to the State’s transportation infrastructure.
Credit Challenges
- Narrow source of repayment (Damages), which is inextricably linked to the financial wherewithal of BP.
- BP’s financial exposure to decarbonization, somewhat offset by the Bonds’ short tenor and excess debt service coverage based on the currently expected Act 443 debt total and debt service schedule.
Rating Sensitivities
For Upgrade
- Sustained improvement in BP’s financial profile – for example, due to successful conversion to cash flow-generating renewable energy.
For Downgrade
- Sustained deterioration in BP’s financial profile, highlighted by inconsistent or weakening cash flow as a result of commodity market volatility, unsatisfactory management of decarbonization, environmental incidents, and/or other factors.
To access ratings and relevant documents, click here.