Moody’s Investors Service, (Moody’s) has today assigned a Aa2 rating to thesenior secured amortising bonds (the Bonds) to be issued by Galaxy Pipeline Assets Bidco Ltd (Galaxy BidCo,or the Issuer). The outlook is stable.Galaxy BidCo purchased, in July 2020, a 47.7% interest in ADNOC Gas Pipeline Assets LLC (AssetCo). Theproceeds of the Bonds will be used to refinance existing bank debt, pay hedge break costs and associatedfees that, in total, currently amount to around USD8 billion.AssetCo, a limited-purpose entity under the laws of Abu Dhabi, Government of (Government of Abu Dhabi,Aa2 stable), United Arab Emirates, Government of (Government of United Arab Emirates, Aa2 stable), enteredinto a 20-year agreement (expiring June 2040) with Abu Dhabi National Oil Company (ADNOC) to lease anetwork of 38 onshore pipelines covering 982.3km in Abu Dhabi. AssetCo has also entered into a 20-yearPipelines Use & Operation Agreement with ADNOC, under which ADNOC pays a fixed tariff with a ship-or-payminimum volume commitment (MVC) and ADNOC is responsible for operations and maintenance at its owncost. The pipelines have an aggregate gross nameplate capacity of 10.5 billion standard cubic feet per day ofsales and injection gas and 161,314 tonnes per day of natural gas liquids.”The Galaxy BidCo bonds will refinance debt raised to part fund the purchase of a share of critical gas pipelineassets for Abu Dhabi, and the credit benefits from risk transfer to ADNOC” said Christopher Bredholt, aMoody’s Vice President – Senior Credit Officer and Lead Analyst for the Issuer. “The sale of a minority interestto institutional investors is consistent with ADNOC’s stated strategy to unlock value in its midstream assets while retaining operational control”.
RATINGS RATIONALE
The Aa2 rating on the Bonds reflects as credit strengths: (1) the critical strategic nature of the pipelines toADNOC and the Government of Abu Dhabi; (2) high predictability of revenue under a long-term Pipelines Use& Operation Agreement, with a fixed tariff and minimum volume commitment from a creditworthy counterparty;(3) ADNOC is responsible for undertaking the O&M at its own expense and retains force majeure anddecommissioning risk; (4) favourable cancellation, termination and force majeure regime under the projectdocuments supports Bondholder recovery in the event the contracts are terminated early; and (5) projectfinance creditor protections, including six-month debt service reserve facility, distribution lock-up triggers, fullyamortising debt, and Bondholder security package.The rating also reflects, as credit challenges: (1) Galaxy BidCo’s minority shareholding and Bondholders’ lackof security over the physical assets, though Moody’s considers the protections within AssetCo’s shareholders’agreement are creditor friendly; (2) Galaxy BidCo is exposed to potential stoppage of dividend payments fromAssetCo, as ADNOC HoldCo will have the right (at its sole discretion) to suspend AssetCo’s distributions toshareholders as a result of ADNOC ceasing to make dividend payments to the Government of Abu Dhabi.However, Moody’s considers as partial mitigants (i) the Issuer’s committed liquidity of six months can be drawnfollowing a temporary distribution block, (ii) to date ADNOC has not suspended dividends to the Governmentof Abu Dhabi and (iii) ADNOC must continue making ongoing MVC payments to AssetCo, and dividends thatwould have otherwise been paid will accumulate in a segregated shareholder account providing incentives tokeep Galaxy BidCo debt repayments current; (3) high financial leverage, though in line with the cost recoveryrisk profile of the project, with minimum/average Moody’s base case forecast DSCRs of 1.08x/1.08x based onthe MVC revenues; (4) some exposure to refinancing risk in case all of the existing c. USD8 billion bank debt isnot refinanced in Q4 2020, albeit manageable in Moody’s view; (5) the lenders under the Debt Service ReserveFacility (DSRF) rank super senior, which may ultimately reduce Bondholder recovery following a default; and(6) the nature of the assets and the legal jurisdiction provide less certainty around the ability of Bondholders toeffectively enforce their security in a timely manner, and the UAE’s bankruptcy regime is relatively untested.
RATIONALE FOR STABLE OUTLOOK
The outlook on the rating is stable, reflecting the stable rating on the Government of Abu Dhabi’s governmentbond rating.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody’s could upgrade the rating if the Government of Abu Dhabi’s sovereign bond rating were upgraded.Moody’s could downgrade the rating: (1) if the Government of Abu Dhabi’s sovereign bond rating weredowngraded; (2) if AssetCo dividend payments to shareholders are suspended at ADNOC HoldCo’s request(following ADNOC suspension of dividend payments to Government), together with a failure of Galaxy BidCosponsors to provide liquidity to keep the Issuer current on debt service in the event the DSRF is fully drawn; or(3) disagreements amongst project parties arise and are expected to lead to potential termination of keycontracts resulting in protracted arbitration/legal proceedings.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was Generic Project Finance Methodology published inNovember 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1194215. Alternatively, please see the Rating Methodologies page on www.moodys.com for acopy of this methodology.ISSUER PROFILEGalaxy BidCo’s business is limited to its 47.7% shareholding in AssetCo.Galaxy BidCo is a special purpose vehicle incorporated under the laws of Jersey, and 100% owned by fundsmanaged by Brookfield Asset Management Inc. (BAM, Baa1 stable), Government of Singapore InvestmentCorporation (GIC), Global Infrastructure Partners (GIP), NH Investment & Securities Co., Ltd (NHI&S), OntarioTeachers’ Pension Plan Board (Ontario Teachers’ Pension Plan, Aa1 stable) and SNAM S.p.A (SNAM, Baa2stable) whose core business is the ownership and management of natural gas infrastructure (together, theSponsors). ADNOC controls 51% of the shares in AssetCo through its 80% owned subsidiary ADNOC GasPipelines HoldCo LLC (ADNOC HoldCo).REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sectionsMethodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols andDefinitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certainregulatory 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 fromexisting ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, thisannouncement provides certain regulatory disclosures in relation to the credit rating action on the supportprovider and in relation to each particular credit rating action for securities that derive their credit ratings fromthe support provider’s credit rating. For provisional ratings, this announcement provides certain regulatorydisclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may beassigned subsequent to the final issuance of the debt, in each case where the transaction structure and termshave not changed prior to the assignment of the definitive rating in a manner that would have affected therating. For further information please see the ratings tab on the issuer/entity page for the respective issuer onwww.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of thiscredit rating action, and whose ratings may change as a result of this credit rating action, the associatedregulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the followingdisclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from ratedentity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendmentresulting from that disclosure.These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit
Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the relatedrating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our creditanalysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legalentity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
