After the credit rating of Spanish developer Abengoa was lowered to Ca with outlook negative on 2 March, Moody's last week said the downgrade should have no impact on the rating of yieldco Atlantica Yield (ABY).
UK-listed ABY, formerly named Abengoa Yield, rebranded in January in an effort to distance itself from its troubled parent company.
The yieldco carries a rating of B1, and Moody's assessed in a 4 March investor comment that “there are sufficient separateness provisions between ABY and Abengoa that insulate the yieldco and any of its assets from being pulled into a possible Abengoa bankruptcy procedure.”
“These provisions include that at December 31, 2015, Abengoa held a 42 percent minority ownership-stake in ABY as well as the composition of ABY's Board of Directors [which] consists of five independent members out of the total eight seats,” Moody's said in a statement. The agency noted that ABY and its management have made “significant progress towards achieving full autonomy from Abengoa”.
Even still, ABY is in the midst of negotiations with lenders to avoid the contagion risk that could arise from an Abengoa debt restructuring due to cross default clauses embedded in the debt financings of four of its projects. Those comprise the Solana and Mojave solar projects in the US, the Kaxu solar project in South Africa and the Cardonal wind farm in Uruguay.
“If un-remedied, the clauses could prevent project level distributions from being paid to ABY,” Moody's said.
In anticipation of additional management costs associated with lender negotiations and related setbacks in shoring up operations at Solana and Kaxu, ABY lowered its 2016 total cash flows available for distribution (CAFD) to between $170 million and $200 million from its prior estimate of between $230 million and $240 million.
The agency however noted that ABY's board has decided to postpone its decision related to dividends from fourth quarter cash flows until the second quarter of 2016 – an “evidence of their willingness to preserve the yieldco's liquidity profile”, according to Moody's.
All the same, Moody's maintained its negative outlook for ABY as it believes that “challenges and uncertainty” remain. Among them are the yieldco's “weak” liquidity profile, foregone preferred dividends from Abengoa Concessoes Brasil Holding, which filed for judicial reorganisation proceedings under Brazilian insolvency law earlier in the year, and the potential impact of securing a new sponsor.
ABY is currently invested in 10 solar plants, six electricity transmission assets, two wind farms, two water projects and one conventional power station. Its assets are located in Algeria, Brazil, Chile, Mexico, Peru, South Africa, Spain and the US.