EIG Pearl Holdings S.à r.l. -- Moody's assigns A1 ratings to EIG Pearl's proposed senior secured bonds; outlook stable

Rating Action: Moody's assigns A1 ratings to EIG Pearl's proposed senior secured bonds; outlook stableGlobal Credit Research - 10 Jan 2022London, 10 January 2022 -- Moody's Investors Service ("Moody's") has today assigned A1 ratings to proposed senior secured amortising bonds (the Bonds) to be issued by EIG Pearl Holdings S.à r.l. (EIG Pearl, the Issuer). The outlook is stable.In June 2021, the Issuer purchased a 49% interest in Aramco Oil Pipelines Company (AssetCo). The proceeds of the Bonds will be used to part refinance existing bank debt, pay hedge settlement costs and associated fees.AssetCo has entered into a 25-year agreement (expiring June 2046) with Saudi Arabian Oil Company (Saudi Aramco, A1 stable) to lease a network of 44 stabilized crude oil pipelines covering more than 4,000km in the Kingdom of Saudi Arabia (KSA). AssetCo has also entered into a 25-year Transportation, Operating and Maintenance Agreement with Saudi Aramco, under which Saudi Aramco pays a tariff based on the volume of stabilized crude oil transported through the pipeline, a component of which has a fixed tariff and a fixed minimum volume commitment (MVC). Saudi Aramco is responsible for operating, maintaining, decommissioning and developing the project assets at its own cost. The pipelines have an aggregate capacity of more than 15 million barrels per day."The EIG Pearl bonds will part refinance debt raised to part fund the purchase of a share of oil pipeline assets that are critical infrastructure for Saudi Aramco and KSA, and the Issuer benefits from the transfer of key risks to Saudi Aramco" said Christopher Bredholt, a Moody's Vice President - Senior Credit Officer and Lead Analyst for EIG Pearl.RATINGS RATIONALEThe A1 rating on the Bonds reflects: (1) the terms of the project documents and shareholders' agreement, which provide for (i) highly predictable payments from Saudi Aramco to AssetCo that are not exposed to volume, price or performance risk; cash distributions to the Issuer derived from these fixed tariff payments are projected to be sufficient to cover bondholder debt service, (ii) bondholder insulation from all costs and risks of operating, maintaining, decommissioning and developing the project assets, (iii) termination payments from Saudi Aramco that are expected to be sufficient to repay senior debt in various scenarios where project documents or the shareholders' agreement are terminated, (iv) a hedging program that protects against base interest rate movements and payments from Saudi Aramco pursuant to a two-way refinancing spread balancing agreement that significantly mitigates refinancing risk -- these protections were designed to ensure the existing bank debt can be refinanced and the bond issuances can be repaid in reasonable refinancing downside scenarios, (v) insulation from additional taxes on distributions from the AssetCo resulting from a change in law; (2) the strategic importance of the oil pipeline assets to Saudi Aramco and to the Government of Saudi Arabia (A1 stable); (3) project finance protections, including limitations on corporate activity, a six-month debt service reserve/facility, distribution lock-up triggers, fully-amortising debt and a security package; (4) the Issuer's minority holding in and lack of control of AssetCo, although shareholders' agreement provisions and a restriction on raising debt at AssetCo substantially mitigate this weakness; (5) high financial leverage, with minimum and average forecast debt service coverage ratios of 1.03x and 1.04x respectively, in Moody's MVC base case; and (6) the nature of the assets and the legal jurisdiction provide less certainty around the ability of bondholders to effectively enforce their security in a timely manner, although this risk is partly mitigated by an offshore share pledge and security over offshore accounts.The project assets are critical infrastructure for Saudi Aramco and the Government of KSA. The pipelines leased by AssetCo transport effectively all of Saudi Arabia's stabilized crude oil. The pipelines supported approximately 90% of Saudi Aramco's upstream revenues for 2019-2020. The oil sector accounted for 67.5%, 64.1% and 52.8% of the Government's revenues in 2018, 2019 and 2020, respectively. Saudi Aramco has no viable alternative for transporting oil from its production locations to its domestic consumption points and export terminals. Any additional pipelines developed by Aramco as part of the network will form part of the project assets. The strategic and economic importance of the project assets indicate unquestionable operational support from Saudi Aramco at the AssetCo level.The Issuer will be entirely reliant on cash distributions from AssetCo to support its debt service obligations on the Bonds. AssetCo's dividend policy stipulates that 100% of free cash flow will be distributed to shareholders. However, if Saudi Aramco's board of directors suspends dividend payments to the Government of Saudi Arabia, Saudi Aramco will have the right (at its sole discretion) to suspend AssetCo's distributions to shareholders. Moody's considers the risk of a suspension of dividend payments by AssetCo to be low based on: (1) the Issuer's debt service reserve facility (DSRF) provides six-month's debt service liquidity that could be drawn following a temporary distribution block; (2) dividends from Saudi Aramco to the Government of Saudi Arabia are such a critical component of the Government's income that their suspension is unlikely; and (3) Saudi Aramco must continue making payments to AssetCo, and a pro rata share of dividends that would have otherwise been paid will accumulate in a segregated AssetCo account in respect of each shareholder.RATIONALE FOR STABLE OUTLOOKThe outlook is stable, reflecting the stable outlook on Saudi Aramco.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's could upgrade the ratings if Saudi Aramco's ratings were upgraded.Moody's could downgrade the ratings if Saudi Aramco's ratings were downgraded or following a suspension of AssetCo's dividend payments to shareholders.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was Generic Project Finance Methodology published in June 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1244806. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.ISSUER PROFILEEIG Pearl's business is limited to its 49% shareholding in AssetCo. EIG Pearl is 89.45% indirectly owned by an aggregator vehicle managed by EIG Global Partners and 10.55% by Seventy Third Investment Company LLC, an indirectly wholly-owned subsidiary of Mubadala Investment Company PJSC. The EIG managed aggregator vehicle investors include the Silk Road Fund, a Chinese state-owned investment fund, Hassana Investment Co, the investment management arm of the General Organization of Social Insurance in KSA, and Samsung Asset Management, the largest asset manager in the Republic of Korea. Saudi Aramco owns 51% of the shares in AssetCo.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions 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 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 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 prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.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 www.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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates 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 office that issued the credit rating is available on www.moodys.com.Please see www.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 ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Christopher Bredholt VP - Senior Credit Officer 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 Kevin Maddick Associate Managing Director Infrastructure Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. 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