Oleoducto Central S.A. -- Moody's assigns Baa3 rating to Ocensa's proposed notes

Rating Action: Moody's assigns Baa3 rating to Ocensa's proposed notes

Global Credit Research - 09 Jul 2020

New York, July 09, 2020 -- Moody's Investors Service (Moody's) assigned a Baa3 rating to Oleoducto Central S.A.'s (Ocensa) proposed new global notes. The Baa3 rating on the proposed notes is based on the rating of Ocensa. The proposed notes are senior unsecured, unsubordinated and pari passu with Ocensa's other senior foreign currency debt. Net proceeds from the notes issuance will be used to repay Ocensa's $500 million notes due May 2021. The rating of the notes assumes that the final transaction documents will not be materially different from draft legal documentation reviewed by Moody's to date and assume that these agreements are legally valid, binding and enforceable. The outlook on the rating is stable.

Assignments:

..Issuer: Oleoducto Central S.A.

....Senior Unsecured Regular Bond/Debenture, Assigned Baa3

RATINGS RATIONALE

Ocensa's ratings and outlook reflect Moody's view that its credit profile is closely linked to that of its main shareholder and controlling entity, Ecopetrol S.A. (Ecopetrol, Baa3 stable). Ocensa's Baa3 rating reflects its leading industry position in Colombia and strategic importance to Ecopetrol as well as favorable industry dynamics in the country in terms of transportation demand for pipelines. The company's ratings also incorporate its tariff and contract structure that supports solid margins and predictable cash flow as well as a moderate financial leverage profile. These factors help offset its exposure as a single-asset pipeline, its relatively small scale within the midstream peer group, and a high dividend payout policy.

The stable outlook incorporates the stable oil production growth trend in Colombia (Baa2 stable) and Moody's expectation that Ocensa will remain the transportation of choice in the country.

Ocensa has good liquidity. The company's liquidity will be stronger after the issuance of the proposed notes but net proceeds from the new notes will be held in cash for the repayment of Ocensa's $500 million notes due in May 2021, in line with regulatory approvals obtained from the Colombian Ministry of Finance and Public Credit. We expect that the company's capital spending in the next couple of years will be small and mainly focused to internal projects. Ocensa has no committed bank facilities but has close relations with Colombian banks.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Ocensa's rating could be positively affected if the company sustains current credit metrics but shows lower vulnerability to Ecopetrol's financial profile with a dividend policy more aligned with the interests of bondholders. An upgrade of Ecopetrol could result in an upgrade of Ocensa's ratings but a rating upgrade of Colombia's sovereign rating would not necessarily trigger a rating upgrade of Ocensa.

Large projects or acquisitions that increase financial leverage could trigger a negative action on Ocensa's rating, although Moody's believes that the company's management and Ecopetrol are aligned in a desire to maintain modest leverage at the pipeline. A downgrade of Ecopetrol's or Colombia's ratings could result in a rating downgrade for Ocensa.

The principal methodology used in these ratings was Midstream Energy published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147839. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Ocensa is the largest crude oil pipeline and the only public-use pipeline in Colombia. Its pipeline is about 848 km in length with 745,000 barrels per day (bpd) of nominal capacity. The company is owned 72.7% by Ecopetrol through its wholly-owned midstream subsidiary, Cenit SAS. In March 2020, the company's assets amounted to close to $2 billion.

REGULATORY DISCLOSURES

For 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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.

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