Moody’s Assigns Aa2 Rating to Notes Issued by Lagoon Park Capital SA

22nd December, 2017


Tomas O’Loughlin & Kevin Maddick, Global Credit Research, Moody’s

Moody’s Investors Service, (“Moody’s”) has today assigned a Aa2 rating to the GBP294,687,404 limited recourse zero coupon senior secured notes due 16 January 2042 (the Notes) issued by Lagoon Park Capital SA (the Issuer) on 15 December 2016. The outlook is stable.

The Issuer is a special purpose securitisation vehicle incorporated as a société anonyme under the laws of the Grand Duchy of Luxembourg. Through individual ring-fenced compartments, the Issuer acquires the benefit of payment receivables from Greensill Capital UK Limited (Greensill, unrated) by purchasing participations in Irrevocable Payment Undertakings (IPUs) made to Greensill by counterparties.

On 23 November 2016, Rio Tinto plc (A3 stable) announced the sale of its operating smelter and hydroelectric power assets at Lochaber, Scotland to Liberty House and SIMEC Group (both unrated). Companies of SIMEC Group and Liberty House, SIMEC Lochaber Hydropower Ltd. (SIMEC, unrated) and Liberty Aluminium Lochaber Ltd. (Liberty, unrated), respectively, have entered into a long-term power purchase agreement (PPA). SIMEC has entered into a Supplier Agreement with Greensill, whereby SIMEC has assigned future receivables under the PPA to Greensill, in return for an upfront payment, which was part used to fund the acquisition of the assets from Rio Tinto.

Liberty has acknowledged the receivables assignment by entering into a Customer Agreement with Greensill, under which it has agreed to make the relevant payments to Greensill on the basis of irrevocable undertakings, i.e., regardless of SIMEC’s performance under the PPA. The Issuer has acquired, via the purchase of participations in Greensill’s IPUs from Liberty, the benefit of the IPUs. The proceeds of the Notes were used to fund the acquisition of the participations, and, in turn, used by Greensill to acquire the IPUs.

Liberty’s payment obligations under the IPUs are backed by an unconditional and irrevocable guarantee (the Guarantee) from the Scottish Ministers (United Kingdom Government, Aa2 stable).

RATINGS RATIONALE

The Aa2 rating reflects the IPUs made by Liberty to Greensill and the Guarantee provided by the Scottish Ministers. Moody’s considers that the Guarantee generally displays characteristics of a strong guarantee agreement. In particular, i) the Scottish Ministers irrevocably and unconditionally guarantee payment, ii) payments made under the Guarantee are expected to ensure full and timely payment to noteholders prior to the expiry of the 10-day grace period in the Notes, iii) the Scottish Ministers may not assign or transfer the Guarantee, iv) the Guarantee term extends beyond the final maturity under the Notes, v) the Scottish Ministers have waived defences and vi) the Scots Law legal opinion opines that the obligations of the Scottish Ministers under the Guarantee constitute the legal, valid, binding and enforceable obligations of the Scottish Ministers.

The transaction and financing arrangements seek to transfer the benefit of the IPU and Guarantee undertakings to the Issuer. These arrangements are complex, which inevitably introduces legal and administrative risk. However, Moody’s assesses that the risk of noteholders not being the ultimate beneficiaries of the IPUs and Guarantee is low.

WHAT COULD CHANGE THE RATING UP/DOWN

The rating is fundamentally linked to that of the UK Government. Any change in the rating of the UK Government would be expected to translate into a rating change on the Notes.

A rating downgrade may also follow 1) a change in the relationship between the Scottish Government and the Crown, resulting, for example, from Scottish independence or 2) evidence that the arrangements that transfer the benefit of the IPUs and Guarantee to noteholders might not be effective.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects the outlook on the United Kingdom sovereign rating.

The principal methodology used in this rating was Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts published in May 2017. Please see the Rating Methodologies page on moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information, please see the ratings tab on the issuer/entity page for the respective issuer on moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see moodys.com for any updates or changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on moodys.com for additional regulatory disclosures for each credit rating.

Tomas O’Loughlin
VP – Senior Credit Officer
Infrastructure Finance Group
Moody’s Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Kevin Maddick
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody’s Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454


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