Capital/Financing Update • Nov 6, 2023
Capital/Financing Update
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November 6, 2023
Leviathan issued \$2.25 billion to refinance its portion of the construction and development costs of the Leviathan gas field. Following a repayment of the 2023 bonds, the principal outstanding on Leviathan's bonds was \$1.75 billion. Rights to explore and produce petroleum and gas in the Leviathan field were granted proportionately to NewMed Energy Limited Partnership (45.34%; Leviathan's parent company), Chevron Mediterranean Ltd. (39.66%), and Ratio Energies (15.00%) under a production lease until February 2044 with an option to extend. Leviathan is an offshore gas field, situated approximately 120 km west of Haifa, with a production platform located 10 km off the coast of Dor, Israel. First gas was delivered in December 2019 and Leviathan currently supplies gas to Israel, Egypt, and Jordan (see "Leviathan Bond Ltd. Affirmed At 'BB-' After Revised Project Finance Criteria; Outlook Remains Stable," published March 15, 2023).
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the project will maintain stable production and low operating costs (below 10% of revenue).
The negative outlook reflects the risk of a potential adverse impact stemming from the war between Hamas and Israel. The outlook revision primarily reflects the material escalation in geopolitical and security risks that Israel faces from the ongoing war with Hamas in the Gaza Strip. On Oct. 24, 2023, we revised our outlook on Israel to negative (see "Israel Outlook Revised To Negative On Geopolitical Risks; 'AA-' Ratings Affirmed," published on RatingsDirect). As of now, Leviathan's assets have not been directly affected by the Israel-Hamas war because they are located away from the affected areas in the northern part of Israel. That said, in recent days there has also been an exchange of fire in the north of the country, which could escalate and potentially expose the project to higher security risks. We continue to monitor the risk of any damage to project's assets or any other limitations on its operations and expansion works, as well as repercussions for exports (Leviathan exports the majority of its production to Egypt and Jordan) and domestic sales. In case of further escalation of the geopolitical situation in the region, physical integrity of assets, continuity of operations and stability, and timeliness of revenue would be our primary focus.
We affirmed our ratings because the project remains fully operational, and its cash flows have not been affected at this stage. Amid the security situation in the south of Israel, the Ministry of Energy and Infrastructure has temporary halted operations at the Tamar gas field due to its proximity to the Gaza Strip. For the time being, we understand two remaining gas fields--Leviathan and Karish Main--have sufficient production capacity to supply domestic needs, together with other available alternative fuels in Israel, and that domestic demand for energy in autumn is seasonally low. Gas exports to Egypt have been conducted through the FAJR pipeline, which bypasses the most affected areas in the south of Israel. We understand that payments from export and domestic off-takers have not been interrupted or delayed. Leviathan has no upcoming debt maturities in the next 12 months and the project has adequate liquidity reserves to cover the interest payments. Leviathan benefits from insurance coverage for risks of direct damage to assets and indirect damage (loss of revenue or prevention of profits) as a result of war or terrorism actions. This is in addition to compensation provided under Israel's Property Tax and Compensation Fund Law for physical loss affecting the market value due to war or terrorism.
The negative outlook reflects the risk that the war between Israel and Hamas could spread more widely and affect the project's performance. We currently assume the conflict will remain centered in Gaza and last no more than three to six months. We continue to monitor the risk of any damage to the project's assets or any other limitations on its operations and expansion works, as well as repercussions for exports and domestic sales.
We could lower the ratings on the debt issued by Leviathan if the conflict widens materially, increasing the security and geopolitical risks the project faces. We could also lower the ratings in the next 12 months if the impact of the conflict on the project's credit metrics proves more significant than we currently project.
We could revise the outlook to stable if risks from the conflict subside substantially or the conflict is resolved, resulting in a reduction of regional and domestic geopolitical and security risks without any repercussions for the project's credit metrics.
| Ratings Affirmed | ||
|---|---|---|
| Leviathan Bond Ltd. | ||
| Senior Secured | BB-/Negative | |
| Recovery Rating 1(90%) |
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.spglobal.com/ratings for further information. A description of each of S&P Global Ratings' rating categories is contained in "S&P Global Ratings Definitions" at https://disclosure.spglobal.com/ratings/en/regulatory/article/-/view/sourceId/504352. Complete ratings information is available to RatingsDirect subscribers at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.spglobal.com/ratings. Alternatively, call S&P Global Ratings' Global Client Support line (44) 20-7176-7176.
Research Update: Outlook On Leviathan Bond's Debt Revised To Negative On Geopolitical Risk; Affirmed At 'BB-'
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