Regulatory Filings • Nov 13, 2022
Regulatory Filings
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London, November 11, 2022 -- Moody's Investors Service (Moody's) has today afrmed the Ba3 rating on the senior secured notes issued by Leviathan Bond Ltd. (Leviathan Bond). The outlook remains stable.
Leviathan Bond is a special purpose vehicle and the notes are secured on the 45.34% working interest of NewMed Energy Limited Partnership (NewMed Energy) in the Leviathan gas project, located off the coast of Israel (the Government of Israel, A1 positive), and associated assets.
Today's rating action recognises Leviathan Bond's strong operational and fnancial performance supported by favourable commodity prices and market dynamics.
Leviathan Bond benefts from the substantial strength in oil and gas prices and increased demand for gas, including from Europe. The project generates strong free cash fow, given a fairly low cost of production. This performance is supportive of Leviathan Bond's credit quality in the context of its refnancing risk, given that the project's USD500 million bond is due in June 2023.
Moody's considers that persistently high prices will bolster Leviathan Bond's credit quality but only to the extent additional cash fows are used to reduce gearing on a sustainable basis, given the quality of incremental earnings, Leviathan's limited diversifcation of off-takers outside Israel and their weak average credit quality. In this regard Moody's notes the potential for direct collaboration on the supply of LNG between NewMed Energy and international counterparties as evidenced by the recent signing of a non-binding memorandum of understanding with Uniper SE.
Overall, the Ba3 rating on the senior secured notes is underpinned by the substantial gas reserves in the Leviathan gas reservoir, which had 1P proved reserves of 347 billion cubic meters (bcm) as of end-December 2021 and an annual production capacity of around 12 bcm., with limited investment requirements to maintain stable production. It further recognises the importance of the feld, which is the largest gas reservoir in Israel, to the country's energy security and the contracted earnings with long-term off-take agreements covering a substantial share of production until 2030, including minimum take-or-pay quantities and foor prices protection to Leviathan's cash fows in the case of weak Brent oil prices. NewMed Energy and the feld's operator, Chevron Mediterranean, have a strong track record at the neighbouring Tamar feld and the former Mari B feld.
The rating is, however, constrained by the fairly high concentration of Leviathan's sales to offtakers with weak credit quality and the reservoir's exposure to geopolitical risk, given its location. The largest off-takers include Blue Ocean, which acts as an intermediary with the Egyptian Natural Gas Holding Company (EGAS) in Egypt (Government of Egypt, B2 negative) and the
National Electric Power Company (NEPCO), owned by the Government of Jordan (B1 stable). 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 LNG export. At the same time, the Leviathan feld faces competition from other Israeli gas suppliers, including the Tamar feld and the recently commissioned Karish feld. Moody's further notes that some of the gas sale purchase agreements (GSPA) include the right for the off-takers to reduce volumes if the Brent oil prices fall below a certain level.
The Ba3 rating further considers the terms of the senior secured notes, with limited creditor protections. Leviathan Bond's debt structure includes four notes with maturities ranging between 2023 and 2030, and the project is exposed to refnancing requirements. The terms of the notes provide for the Principal Reserve Fund, which begins to fll 12 months ahead of each maturity date but to a maximum amount of USD150 million in addition to the Debt Payment Fund, which must include USD100 million prior to any distribution. In this regard, Moody's expects Leviathan Bond to manage the refnancing risk in a timely fashion and positively considers the strong cash fow generation of the project ahead of the next year's debt maturity.
The stable outlook refects Moody's expectation that Leviathan Bond will achieve improving fnancial metrics, in particular the ratio of funds from operations (FFO) to debt, based on NewMed Energy's share of the Leviathan project's cash fow.
The ratings could be upgraded if Leviathan Bond achieved FFO/debt sustainably above 25% and the market dynamics in terms of gas demand and prices remained favourable, or if the Leviathan partners entered into material new take-or-pay gas sale and purchase agreements with highquality off-takers that improved cash fow visibility.
The ratings could be downgraded if FFO/debt appeared likely to fall below the mid-teens in percentage terms, if cash fow visibility deteriorated, if targeted production levels were not achieved or subsequently disrupted, or if appears that Leviathan Bond will be unable to refnance maturities in a timely fashion.
The principal methodology used in these ratings was Generic Project Finance Methodology published in January 2022 and available at https://ratings.moodys.com/api/rmcdocuments/361401. Alternatively, please see the Rating Methodologies page on https:// ratings.moodys.com for a copy of this methodology.
Leviathan Bond Ltd. is a special purpose vehicle established to issue bonds secured by a frst priority fxed pledge of NewMed Energy's 45.34% working interest in the Leviathan gas project as well as certain associated assets. Recourse against NewMed Energy is limited to the collateral pledged by the sponsor.
For further specifcation of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form.
For ratings 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. 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 defnitive rating that may be assigned subsequent to the fnal issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the defnitive rating in a manner that would have affected the rating. For further information please see the issuer/ deal page for the respective issuer on https://ratings.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.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC\_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's afliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's ofce that issued the credit rating is available on https://ratings.moodys.com.
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 additional regulatory disclosures for each credit rating.
Joanna Fic Senior Vice President 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
Neil Grifths-Lambeth Associate Managing Director Infrastructure Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454
Releasing Ofce: 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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