The notes are rated the same as all senior unsecured obligations of YPF. While positive, the credit enhancement of the transaction’s structure is not sufficient to merit a rating uplift given the short track record of YPF’s agro exports and the short-term nature of sale contracts with traders.
Key Ratings Drivers
YPF’s ratings reflect its strong linkage with the credit quality of the Republic of Argentina (Fitch local and foreign currency IDRs of ‘B-‘, Outlook Negative) and the company’s low reserve life. The ratings also factor in YPF’s strong business position in the local market as well as its relatively strong credit protection measures.
Linkage to Sovereign
YPF’s ratings reflect the close linkage with the Republic of Argentina resulting from the company’s ownership structure as well as recent government interventions. The Republic of Argentina controls the company through its 51% participation after it nationalized the company on April 2013 by expropriating the controlling ownership previously owned by Repsol S.A. Since the expropriation, the company’s strategy and business decisions are governed by the Republic of Argentina and at times may go against profit maximization.
Low Hydrocarbon Reserve Life
The ratings consider the company’s relatively weak operating metrics characterized by low reserve life and historically declining production levels. As of year-end 2012, YPF reported proven reserves of 979 million barrels of oil equivalent (boe) and average production of 485,000 boe per day. During the first half of 2013, the company reported production of 480,000 boe per day. Production has been stable during the past three quarters. This translates into a reserve life of approximately 5.5 years, which is significantly below optimal levels and has the potential to create significant operational challenges in the medium to long term. During 2012, the company’s reserve replacement ratio was approximately 85%.
Strong Business Position
YPF benefits from a strong business position supported by its vertically integrated operations and dominant market presence in the Argentine hydrocarbons’ market. Fitch anticipates that YPF will continue exercising an active role in domestic fuel and gas supply.
Adequate Credit Protection Metrics
The ratings reflect YPF’s relatively solid credit protection metrics, characterized by moderate leverage and a manageable debt amortization schedule. As of the last 12 months (LTM) ended June 30, 2013, total financial leverage, as measured by total debt-to-EBITDA, reached 1.3x, which is considered low for the assigned rating. As of year-end 2012, leverage (as measured by total debt-to-total proven reserves) was average at USD3.5 per boe. Total debt as of June 30, 2013 amounted to approximately USD4.466 million, of which approximately USD970 million was short-term. Total cash and equivalents amounted to approximately USD954 million as of June 30, 2013. EBITDA for the LTM ended June 2013 was approximately USD3.364 million. During recent years, the company’s leverage has been increasing, mostly as a result of increases in debt. The company’s stated strategy is to maintain its net leverage below 1.5x.
The ‘RR4’ Recovery Rating reflects an average expected recovery given default and is in line with the RR soft cap established for Argentina. The structure put in place by the company for the proposed issuance supports access to foreign currency for debt service given that the Argentine central bank has allowed the company to create a collateral account to hold foreign currency funds abroad. The company will maintain funds equal to 125% of the next two quarterly amortization payments. YPF will fund the collateral account using proceeds from grain exports to four trading companies, which have signed letters of notice and acknowledgment to deposit their payment in the collateral account.
Rating Sensitivities
YPF’s ratings could be negatively affected by a combination of the following: a downgrade of the Republic of Argentina’s ratings; a significant deterioration of credit metrics; and/or the adoption of adverse public policies that can affect the company’s business performance in any of its business segments.
A positive rating action in the short-to-medium term is considered unlikely given the linkage with sovereign credit quality and the Negative Rating Outlook for all foreign and local currency IDRs.
Additional information is available at ‘www.fitchratings.com‘.
Applicable Criteria and Related Research:
–‘Corporate Rating Methodology’ (Aug., 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=803178
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY’S PUBLIC WEBSITE ‘WWW.FITCHRATINGS.COM‘. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE ‘CODE OF CONDUCT’ SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
Source Article from http://www.fortmilltimes.com/2013/09/25/2982221/fitch-expects-to-rate-ypfs-proposed.html
