Fitch: Star Energy Geothermal's USD notes 'B+(EXP)'

(Jakarta/Singapore-10 March 2013) -- Fitch Ratings has assigned Indonesia-based Star Energy Geothermal (Wayang Windu) Limited's (SEG) proposed senior secured notes an expected rating of 'B+(EXP)' with a Recovery Rating of 'RR4'.

The notes are rated at the same level as SEG's Issuer Default Rating (IDR) of 'B+', as they will constitute direct, unconditional and senior secured obligations of the company. The final rating is contingent upon the receipt of final documents conforming to information already received.

Proceeds from the proposed notes will largely be used to refinance SEG's outstanding senior secured USD notes of USD337.5m, of which USD12.5m, USD25m and USD300m are due in 2013, 2014 and 2015 respectively. As part of the refinancing process SEG will have the option of repaying USD85m of its USD102m subordinated shareholder loan immediately and a further USD1m per annum thereafter. Fitch expects the repayment of the shareholders loan to be made out of SEG's existing cash at hand (USD139m at end-December 2012) and as such does not expect SEG's total indebtedness to change materially.

While the refinancing exercise will improve SEG's liquidity in the medium-term, leverage - on a net of cash basis - will increase due to the repayment of USD85m of the subordinated shareholder loan. This is because Fitch has not treated the loan as debt due to its subordinated nature and it being interest-free. However, Fitch does not expect SEG's funds from operations (FFO)-adjusted net leverage to exceed the negative guidance of 5.0x on a sustained basis. This is based on Fitch's expectation that SEG will generate positive operational cash flows, incur limited maintenance capex and not pay out any substantial dividends in the medium term.

SEG's ratings reflect geological risks inherent to operating in an active seismic area as well as the high visibility of its earnings. The rating remains constrained by geological risks, particularly given its single site operation, and by potential heavy capex relative to its balance sheet. On the other hand, the company has demonstrated reliable operating performance, underpinned by its long-term 'take or pay' energy sales contract with the state power utility, PT Perusahaan Listrik Negara (BBB-/Stable). (ends)