Capital/Financing Update • Feb 14, 2024
Capital/Financing Update
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London, February 14, 2024 -- Moody's InvestorsService (Moody's) has today confirmed theBa3 ratings on the senior secured notes issued by LeviathanBond Ltd.(LeviathanBond).The outlook is negative.Previously, the ratings were on review for downgrade.This concludes the review for downgrade initiated by Moody's on 23October 2023.
LeviathanBond is a special purpose vehicle and the notes are secured on the 45.34% working interest of NewMed Energy LimitedPartnership (NewMedEnergy)in the Leviathan gas project, located off the coast of Israel, and associated assets.
Today's rating action takes account of LeviathanBond's continued strong operational and financial performance with no material negative impact of the conflict between Hamas and Israel to date. However, it also considers the persistent downside risks to LeviathanBond stemming from the increased geopoliticalrisk and military activity, which could adversely impact the project's operations.
LeviathanBond derives its cash flows entirely from the Leviathan field, which is located 130 km offshore, in the northern part of the country.The field is connected to the Leviathan platform some 10 km off the coast of Israel.Since the start of the military conflict, the Leviathan field has been operating at full capacity and there has been no disruption to its operations.While there was some shift in Leviathan's sales during the temporary suspension of operations at the Tamarfield and closure of theEMGpipeline, cash flows have remained resilient and there have been no negative developments associated with any of Leviathan's contracts, with payments from all the offtakers remaining current.
Moody's considers LeviathanBond's liquidity as adequate.The project continues to generate strong cash flows on a monthly basis and LeviathanBond does not have any immediate refinancing needs. Its next debt maturity is related to the USD600 million bond due in June 2025.The terms of the notes provide forthePrincipal Reserve Fund, which begins to fill 12 months ahead of each maturity date but to a maximum amount of USD150 million in addition to the DebtPaymentFund, which must include USD100 million priorto any distribution.
Moody's will continue to assess LeviathanBond's exposure to the evolving operating and geopolitical environment. In particular, any risks of damage to Leviathan assets, associated infrastructure, changes to key offtakers and timeliness of payments, as well as potential for government intervention, against the protection provided by the insurance package for physical damage risk and business interruption. LeviathanBond's insurance policies apply in an event of a political violence, and they are additional to thePropertyTax and Compensation Fund, which is provided by the
Government of Israel.
Overall, theBa3 rating on the senior secured notes is underpinned by the large size and the very long life of Leviathan's gas reserves, with limited investmentrequirements to maintain stable production. It furtherrecognises the importance of the field, which is the largest gas reservoirin Israel, to the country's energy security and contracted earnings with long-term off-take agreements, including minimum take-or-pay quantities and floor prices.The rating is, however, constrained by the reservoir's exposure to geopoliticalrisk, given its location and fairly high concentration of Leviathan's sales to off-takers with weak credit quality.While some of the gas sold to these counterparties is directed to the global markets, Leviathan is reliant on those off-takers for exports, given the lack of infrastructure in Israel to support direct LNGexport.TheBa3 rating further considers LeviathanBond's financial leverage and the terms of the senior secured notes, with limited creditor protections and the project's refinancing requirements.
The negative outlook reflects the risks of a potential adverse impact stemming from the military activity in the country on LeviathanBond's operations and cash flows.
Given the negative outlook, an upgrade of the ratings is unlikely. Moody's could change the outlook to stable if the conflict is resolved orrisks from the conflict materially subside with no negative impact for LeviathanBond's operational and financial performance.
The ratings could be downgraded if(1)the conflict were to widen orthe situation in the North escalated to a full-scale conflict with Hezbollah;(2) Leviathan's assets or operations were adversely impacted and this was not offset by any mitigating measures from the government, shareholders orthrough the insurance coverage;(3)funds from operations (FFO)to debt, based on NewMedEnergy's share of the Leviathan project's cash flow, were to fall and remain sustainably below the high teens in percentage terms; or(4)there were concerns about LeviathanBond's liquidity.
The principal methodology used in these ratings wasGenericProject Finance Methodology published in January 2022 and available at .Alternatively, please see the Rating Methodologies page on for a copy of this methodology. https://ratings.moodys.com/rmc-documents/361401 https://ratings.moodys.com
LeviathanBond Ltd. is a special purpose vehicle established to issue bonds secured by a first priority fixed pledge of NewMedEnergy's 45.34% working interest in the Leviathan gas project as well as certain associated assets. Recourse against NewMedEnergy is limited to the collateral pledged by the sponsor.
Forfurther specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology
Assumptions andSensitivity toAssumptions in the disclosure form. Moody's RatingSymbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
Forratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices.Forratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the creditrating action on the support provider and in relation to each particular creditrating action for securities that derive their creditratings from the support provider's creditrating. For provisionalratings, this announcement provides certain regulatory disclosures in relation to the provisionalrating 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 priorto the assignment of the definitive rating in a mannerthat would have affected the rating.Forfurtherinformation please see the issuer/deal page forthe respective issuer on https://ratings.moodys.com.
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The ratings have been disclosed to the rated entity orits designated agent(s) and issued with no amendmentresulting from that disclosure.
These ratings are solicited.Please referto Moody'sPolicy for Designating andAssigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
Regulatory disclosures contained in this press release apply to the creditrating and, if applicable, the related rating outlook orrating review.
TheGlobalScale Credit Rating(s) discussed in this Credit RatingAnnouncement was(were)issued by one of Moody' affiliates outside theEU and is(are) endorsed for use in theEU in accordance with theEU CRARegulation.
Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the issuer/deal page on https://ratings.moodys.com for additionalregulatory disclosures for each credit rating.
Joanna Fic SeniorVicePresident Infrastructure FinanceGroup Moody's InvestorsService Ltd. One CanadaSquare
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NeilGriffiths-Lambeth Associate Managing Director Infrastructure FinanceGroup JOURNALISTS: 44 20 7772 5456 ClientService: 44 20 7772 5454
ReleasingOffice: Moody's InvestorsService Ltd. One CanadaSquare CanaryWharf London,E14 5FA UnitedKingdom JOURNALISTS: 44 20 7772 5456 ClientService: 44 20 7772 5454
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