RATING DRIVERS
Supporting Factors:
- Stable and predictable revenue stream underpinned by firm long-term contracts with strategically important Jamaican entities
- NFE SPH’s underlying asset consists of a modern, efficient electricity and steam generating plant, with good operating efficiency
- Stable operating profits support comfortable debt servicing capacity
- Credit enhancements in the form of a parent company guarantee and reserve accounts also support the rating
Constraining Factors:
- Unproven track record of consistent plant performance
- High leverage of Parent can hamper timeliness of financial support, if needed
Rating Sensitivity Factors
Factors that could, individually or collectively lead to an improvement in the ratings and/ or outlook include:
- Successful operations of the CHP plant over the next two to three years, in accordance with design specifications and on time compliance with the PPA and SSA deliverables over the period.
- An improvement in the creditworthiness of the guarantor (NFE), sustained over 2 consecutive years
- 2 consecutive years of reported profit after tax of the Company, leading to an improvement in its financial position and TNW
Factors that could, individually or collectively lead to a lowering of the ratings and/or outlook include:
- Deterioration in the creditworthiness of the guarantor (NFE), thereby reducing its ability to honor its guarantee commitment to NFE SPH in a timely manner, if so required
- Breach of contract by the O&M counterparty, Caribbean Blue Skies Energy, that may have a negative impact on operations
- Any material litigation which may affect NFE or NFE SPH
- Breach of any of the bond covenants
- A material reduction in the CHP plant’s availability which would impair its ability to deliver output stipulated in the PPA and SSA
- Failure by NFE or NFE SPH to capitalize the principal reserve account, at the appropriate time
- Failure by Jamalco to resume full operations
- The inability of NFE SPH to refinance the bullet payment
COMPANY BACKGROUND
NFE South Power Holdings Limited (NFE SPH or the Company), a wholly owned subsidiary of New Fortress Energy Incorporated (NFE or the Parent)[1], was established in 2016 to own and operate a new modern, energy-efficient combined heat and power (CHP) plant in Clarendon, Jamaica, which commenced commercial operations in the first quarter of 2020. The CHP plant is fuelled by natural gas, with the ability to run on diesel as a backup fuel source. It can generate up to 100 MW of electricity and approximately 50 MW equivalent of steam.
NFE SPH has in place long-term contracts to sell 100% of the electricity and steam produced by the CHP Plant for the next 18½ years to Jamaican counterparties. NFE SPH sells all electricity produced by the CHP Plant to the sole power distribution utility company in Jamaica, the Jamaica Public Service Company Limited (JPS), rated jmAA+ by CariCRIS, pursuant to a long-term Power Purchase Agreement (PPA). NFE SPH also sells all steam produced by the CHP Plant to the Jamalco bauxite refinery[2] under a long-term Steam Supply Agreement (SSA) with its owners, General Alumina Jamaica Limited and Clarendon Alumina Production Limited (collectively known as Jamalco). Throughout 2020, the CHP Plant had the highest dispatch factor of 95% relative to all other Jamaican power generators. For the financial year ended December 2020, NFE SPH recorded total revenue of US $94.4 million and total assets stood at US $241.9 million as at that date.
As a start-up entity, NFE SPH financed the construction of its CHP Plant through a shareholder loan and borrowings from related parties. The Company is now seeking to put more appropriate long-term debt financing in place given the long-term nature of its assets and repay amounts due to its shareholders and related parties. As such, NFE SPH intends to issue a bond in the amount of US $285 million, the proceeds of which will be used as follows:
[1] New Fortress Energy Incorporated, founded in 2014 in Delaware, USA, is a gas-to-power infrastructure business that focuses on converting existing power generation to run on natural gas, building new gas-fired power generation plants, operating downstream gas-to-power assets, and supplying such assets with natural gas. NFE is a publicly traded company on the NASDAQ exchange with a market capitalization of approximately US $8.3 billion, and is currently rated at BB- (stable outlook) by both Standard and Poor’s and Fitch, the equivalent rating of which is CariA- on the CariCRIS regional rating scale.
[2] This refinery was damaged by fire in August 2021 and repairs have been ongoing with resumption of full operations expected in H1 2022.
Analytical Contacts:
Maxwell Gooding
Tel: 1-868-627-8879 Ext. 235
E-mail: [email protected]
Keith Hamlet
Tel: 1-868-627-8879 Ext. 244
Mobile: 1-868-487-8356
E-mail: [email protected]
Website: www.caricris.com
Email: [email protected]
Disclaimer: CariCRIS has taken due care and caution in compilation of data for this product. Information has been obtained by CariCRIS from sources which it considers reliable. However, CariCRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. No part of this report may be published / reproduced in any form without CariCRIS’ prior written approval. CariCRIS is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this product