KBRA Assigns an A+ Rating to the State of Louisiana Economic Damages Revenue Bonds [LA 1/LA 415 Connector Project]; Affirms Rating for Parity Debt; Outlook is Stable
21 Nov 2023 | New York
KBRA assigns a long-term rating of A+ to the State of Louisiana Economic Damages Revenue Bonds [LA 1/LA 415 Connector Project] (TIFIA), with a final maturity of September 1, 2033, and at the same time affirms the long-term rating of A+ for parity debt. The Outlook remains Stable.
The long-term rating reflects the business and financial risk profile of BP p.l.c. (“BP”, 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 the 2015 Settlement Agreement but does not guarantee the TIFIA debt. KBRA’s evaluation of BP figured prominently into the rating.
The rating further reflects 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”, 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 rating include the relatively short, 11-year tenor of the bonds and loans, and the overall size of the Damages, which is nominal compared to BP’s overall financial capacity.
Key Credit Considerations
The rating was assigned because of the following key credit considerations:
- 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
- Reliance on BP’s ability to pay Damages considering BP’s high exposure to fluctuations in energy markets and historically sizable debt levels.
- 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.
- Sustained improvement in BP’s financial profile – for example, due to successful conversion to cash flow-generating renewable energy.
- Sustained deterioration in BP’s financial profile, particularly in terms of consistent revenue and cash flow, which could be driven by commodity market volatility, unsatisfactory management of decarbonization, environmental incidents, or other factors.
To access rating and relevant documents, click here.