Fitch Rates AquaSure Finance's Senior Secured Debt 'A-'/Stable

(The following statement was released by the rating agency)

SYDNEY, January 15 (Fitch) Fitch Ratings has assigned a final rating of 'A-' to 
the AUD3.75bn senior secured debt issued by AquaSure Finance Pty Limited 
(AquaSure Finance), the financing vehicle for Australia-based AquaSure Pty 
Limited (AquaSure). The Outlook is Stable. 

The rating follows the issuance of the following bonds:

AUD150m Australian Medium Term Notes due 2020;

USD310m US Private Placement notes due 2024 (forward start of 27 February 2014); 
and

AUD100m US Private Placement notes due 2024 (forward start of 27 February 2014).

The rating for the senior secured debt takes into account the stable cash flow 
provided by AquaSure's concession, which runs through to 2039, to design, build, 
operate and maintain a 150 gigalitre/year desalination plant and associated 
infrastructure near Melbourne, Victoria, under a public-private partnership.

Construction of the desalination project was completed in December 2012, about 
five and a half months later than planned, after satisfying all testing 
requirements. Certain disputes that arose due to the completion delay were 
successfully settled in October 2013 with the agreement of all parties. The 
project is not required to produce water in the current year ending 30 June 2014 
due to adequate water levels in Melbourne-area reservoirs.

KEY RATING DRIVERS

Robust Revenue Profile: AquaSure benefits from the strong credit position of the 
State of Victoria (the State), from which it receives a monthly payment in 
return for operating and maintaining the project. AquaSure takes no price or 
volume demand risk since payments are made regardless of whether the State calls 
upon the plant to produce water. The risk of revenue abatement, resulting from a 
failure to meet water production or other requirements, is effectively passed 
through to the third-party operator, subject to a cap. The project's Revenue 
Risk attribute is assessed as "Stronger".

Cost Pass Through: A joint venture of Degremont and Thiess Services (the O&M JV) 
operates and maintains the project, including asset replacement, under a 
set-price contract for the life of the concession. The partners take the risk of 
cost overruns, backed by joint and several guarantees from their parent 
companies (Suez Environnement and Leighton Holdings) and security bonding. 
Electricity is provided by AGL Sales Pty Ltd under a fixed price contract and 
guaranteed by AGL Energy Ltd, one of Australia's largest energy utilities. The 
Operating Risk attribute is assessed as "Stronger".

Proven Technology: The plant uses a modular design based on proven technology, 
with 7.5% excess capacity above the highest potential water requirement. The 
facility was subjected to a number of tests, including a 30-day test at full 
output, which it passed with comfortable margins. Separate energy performance 
testing demonstrated energy usage was significantly better than target levels. 
Aquasure holds a maintenance and repairs account which is sufficiently funded to 
meet the next 12 months of budgeted asset replacement costs. Infrastructure 
development and renewal risk is assessed as "Midrange".

Refinancing Risk Well-Managed: The AUD3.75bn of senior debt is exposed to 
refinancing risk. However, the risk is partially mitigated through a broad 
spread of debt maturities, and a 50-50 sharing with the State of any losses due 
to higher refinancing margins. Base rates are fully hedged, and the State takes 
the risk of base rates that are higher than the base case. The issuance of the 
bonds, along with the refinancing in October 2013 of the project's entire senior 
debt facilities in the bank market, demonstrates Aquasure's adequate access to 
debt markets. The Debt Structure risk attribute is assessed as "Midrange".

Robust Debt Service Metrics: The minimum debt service coverage ratio (DSCR) is 
1.33 in Fitch's rating case, which is acceptable for this rating level given the 
pass through of most O&M costs to the O&M JV on an uncapped basis. The joint and 
several parent guarantees mean that two strongly rated counterparties would need 
to default before AquaSure became exposed to these costs. Without that 
guarantee, higher debt coverage margins would be required to attain an 'A-' 
rating.  

RATING SENSITIVITIES

Significant deterioration in the credit profile of the State, the parent 
guarantors of the O&M contractor, or the energy provider, could put pressure on 
AquaSure Finance's rating. Other factors that could affect the rating include: 
substantial overruns in the operations, maintenance, or asset replacement costs; 
excessive abatement of monthly service payments; or significant unavailability 
of the asset, such as in the case of a prolonged technical problem. AquaSure 
Finance's rating could also come under pressure if it experiences difficulty in 
refinancing its debt in advance of maturities, or if its debt margins increase 
to a level that has a material adverse effect on debt service coverage ratios.

Contacts: 

Primary Analyst

David Cook 

Director

+61 2 8526 0363

Fitch Australia Pty Ltd, 77 King Street, Sydney NSW 2000 

Secondary Analyst

Sajal Kishore

Director

+61 2 8256 0321

Committee Chairperson

Dan Robertson

Managing Director

+44 20 3530 1312

Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326, Email: 
iselle.gonzalez@fitchratings.com.

Additional information is available at www.fitchratings.com. 

Applicable criteria, "Rating Criteria for infrastructure and Project Finance', 
dated 11 July 2012 and 'Rating Criteria for Availability-Based Projects', dated 
18 June 2013, are available on www.fitchratings.com.

Applicable Criteria and Related Research: 

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Rating Criteria for Availability-Based Projects

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710784

Additional Disclosure 

Solicitation Status 

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=814794

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