(The following statement was released by the rating agency)SYDNEY, June 07 (Fitch) Fitch Ratings has assigned a rating of 'BBB-' to the senior secured debt issued by DBCT Finance Pty Limited (DBCT Finance), the financing vehicle for Australia-based DBCT Management Pty Limited (DBCT). The Outlook is Stable. The debt covered by the rating includes the following instruments issued by DBCT Finance:- 10-year fixed bonds of AUD150m maturing 9 June 2016- 10-year floating bonds of AUD200m maturing 9 June 2016- 9-year US Private Placement notes - Tranche B of USD300m maturing on 15 March 2020- 15-year floating bonds of AUD230m maturing 9 June 2021- 16-year floating bonds of AUD200m maturing 12 December 2022- 12-year US Private Placement notes - Tranche A of USD300m maturing on 28 April 2023- 12-year US Private Placement notes - Tranche A of USD260m maturing on 12 September 2024- 12-year US Private Placement notes - Tranche B of AUD75m maturing on 12 September 2024- 20-year floating bonds of AUD100m maturing 9 June 2026The rating for DBCT Finance's senior secured debt takes into account the stable cash flows provided by the take-or-pay contracts with its coal mine customers and the requirement for its customers to fund any revenues lost due to default or non-renewal of a contract by another customer. DBCT also benefits from a contractual pass-through of operating and maintenance costs to customers. With a nameplate capacity of 85 million tonnes per annum (mtpa), DBCT is the largest and lowest-price coal export terminal serving Australia's Bowen Basin in central Queensland, which has the country's highest quality metallurgical coal and low average-costs relative to other coal producing regions globally. While the coal-market downturn has created financial stress for customers and lowered DBCT's contracted capacity to 80.7mtpa, Fitch's view is that slow-but-steady increases in coal prices and DBCT's strong competitive position will support higher contracted usage in the future. The regulation of the capital charge portion of DBCT's customer fees imposes some regulatory risk, but also serves to align the company's prices with costs of financing. Fitch sees this as providing a partial mitigant to refinancing risks.KEY RATING DRIVERSTake-or-pay Contracts; Diverse Customers: DBCT benefits from medium-term take-or-pay contracts with 17 coal mines, most of which are ultimately owned by global mining companies. If there is any reduction in contracted capacity due to default or non-renewal of contracts by customers, the remaining customers must fund the revenue shortfall via increased fees on a pro-rata basis. Revenue is therefore independent of coal throughput. The drop in metallurgical coal and thermal coal prices over the past four years has affected the profitability of DBCT's customers and 4.3mtpa of contracts expiring in 2016 are not being renewed. However, this is largely due to planned mining developments not proceeding, rather than existing coal mines being shut down. Mines in the DBCT-catchment area in the Bowen Basin are mainly in the lower-half of the global seaborne export coal cash cost curve. DBCT is the most competitive coal terminal serving the central Bowen Basin in terms of location and port fees. Destinations for DBCT's coal exports are diversified across Asia and Europe, with China taking just 18%. This limits DBCT's exposure to a China slowdown. DBCT is unlikely to be fully contracted in the near- to medium-term, but Fitch expects its strong market position and continuing Asian demand for seaborne coal exports to maintain its high level of contracted capacity. DBCT's Revenue Risk-Volume attribute is assessed as "Stronger".Stable Regulation; Cost Pass-Through: The fee DBCT charges customers includes a regulated terminal infrastructure charge (TIC) and a handling charge. The TIC is designed to allow DBCT to earn a market rate of return on its regulated asset base (RAB) and is reset every five years, with the next reset scheduled for 1 July 2016. The regulator has issued a draft decision, which results in an approximate 30% drop in the TIC. This was expected by DBCT and is incorporated in Fitch's financial analysis. While the regulation imposes a degree of regulatory risk, Fitch views the regulation as being highly transparent and predictable. It also serves as a partial mitigant to potential future increases in borrowing rates, as they would be taken into account in price resets. DBCT's O&M costs are fully and contractually passed-through to customers via the handling charge. The operator of DBCT is owned by customer associates representing around 95% of contracted capacity. This helps reduce the risk of customer dissatisfaction with the handling charge. Fitch considers this to be a stronger attribute, but assesses DBCT's overall Revenue Risk-Price as "Midrange".Strong Capital Planning Mechanism: DBCT has a strong non-expansionary capital expenditure process, which is initiated by the management of DBCT's operator. The project then requires review and approval by the operator's board, the customer group and the board of DBCT. Once the project is completed it is submitted to the regulator for approval and inclusion in the RAB, which then allows DBCT to earn the regulated rate-of-return on the investment. While it is possible for the regulator to reject an application to add non-expansionary capex to the RAB, this has never occurred for DBCT. The company's financial forecasts reviewed by Fitch do not require any expansion of the port's current 85mtpa capacity. Planned expenditure is for items such as replacement capex, improvements to port operations and compliance with environmental and safety regulations. Fitch assesses DBCT's Infrastructure Development and Renewal Risk as "Midrange".Debt Structure Well-Managed: DBCT is financed with senior secured debt. A significant proportion of variable rates are hedged. Hedges are aligned with the five-year regulatory periods to minimise mismatch risk with regulated revenues. Lenders benefit from a six-month debt service reserve account as well as lockup and default covenanted gearing levels (debt/RAB) and debt service coverage ratios (DSCR). Foreign currency debt is fully swapped back to Australian dollars. The bullet maturities of the debt issues create refinancing risk for DBCT. However, this is well-managed through a well-laddered maturity profile, with the next maturity in 2019, and refinancing in advance of maturities. The five-yearly regulatory reset also helps reduce the risk of higher debt risk premiums in the future. The successful refinancing of AUD350m this year into a five-year syndicated bank facility demonstrates appetite for DBCT's debt, despite the severe coal market downturn. Appropriate Debt Service Metrics: DBCT's DSCR averages 1.49x over the debt amortisation period in Fitch's rating case, with a minimum of 1.41x that occurs in 2026. The concession life coverage ratio, measured to 2054, when Fitch expects DBCT's regulated asset-base to be fully amortised, is 1.43x. This concession can be extended by 49 years at the end of the current lease term in 2051.
Fitch believes debt/EBITDA, forecasted at around 10.5x for the next several years in Fitch's rating case, is quite high. This is largely the result of the currently low financing costs used in calculating regulated revenue. If rates return to their long-term averages, as Fitch assumed in the rating case, debt/EBITDA would drop to around 7.6x following the price reset in 2021. Overall, Fitch considers the debt service metrics to be appropriate for the 'BBB-' rating, given the Midrange assessment of Key Rating Drivers. While DBCT's debt/RAB ratio is higher than for some similarly-rated issuers with regulated revenue streams, Fitch believes the ratio is appropriate due to DBCT's strong financial covenants and the full pass-through of O&M costs.Fitch considered the ratings for DBCT in the context of its wider group of rated port issuers, and also compared the financial metrics to those of other issuers with regulated revenue streams.RATING SENSITIVITIESA downgrade could result if DBCT's contracted capacity falls due to customer default or non-renewal of contract. If such falls result in socialisation of revenues, this could also put downward pressure on the rating if the resulting higher customer fees negatively affect DBCT's competitive position among Queensland coal export terminals. An increase in the debt/RAB ratio above 80% or a decrease in the projected minimum DSCR below 1.35x in Fitch's rating case could also lead to a downgrade.An upgrade might occur in the longer-term if there is a sustained rise in coal prices that leads to substantial increases in coal production in DBCT's catchment area, accompanied by fully contracted capacity at DBCT and the debt/RAB ratio dropping and being maintained below 75%.SUMMARY OF CREDITThe Dalrymple Bay Coal Terminal is a coal export terminal located at the Port of Hay Point in Queensland, Australia, with an annual maximum throughput capacity of 85 mtpa. It is leased to DBCT by the Queensland government under a 50-year lease with a 49-year extension option.Contact: Primary AnalystDavid CookDirector +61 2 8256 0363Fitch Australia Pty Ltd, 77 King Street, Sydney NSW 2000, AustraliaSecondary AnalystSajal KishoreSenior Director+61 2 8256 0321Committee ChairpersonIan DixonManaging Director+44 20 3530 1815Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com.Additional information is available on www.fitchratings.comApplicable Criteria Rating Criteria for Infrastructure and Project Finance (pub. 28 Sep 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870967Rating Criteria for Ports (pub. 20 Oct 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=872725Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=1005669Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005669Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det ail=31ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.