The coronavirus pandemic is leading financial markets to experience several fallouts. However, according to a new report by Fitch Ratings, energy projects throughout North America have been resilient enough to withstand the pandemic’s effects.
Coronavirus impact: Resilient projects characteristics
In the report, Fitch affirms 37 of 46 North American energy projects kept their investment, and consecutively, they obtained a favorable rate. Of the other nine projects, five were canceled, three downgraded, and one placed on the Rating Watch Negative category.
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A large majority of Fitch’s monitored credits in North America are investment-grade with six-month antiquity. In the report, Fitch’s experts observe that most projects did not experience material changes in revenues or operations due to the pandemic.
The review, conducted from March 2020 to August 2020, demonstrates limited volatility in Fitch’s rated North American energy projects portfolio. 62% of the projects showed little rating volatility due to coronavirus.
According to Andrew Joynt, Fitch’s Senior Director, what contributed to these projects’ resiliency were contractual features, stable operating profiles, and their near- to mid-term ability to withstand coronavirus’ challenges.
Additionally, Joynt declared that some rating actions taken on credits were driven by market dynamics and risks related to the pandemic.
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Besides, most of the projects rated by Fitch were contracted under long-term power purchase agreements (PPAs). This condition prevents them from market volatility and dispatch risk. Over the past several months, fully contracted projects are better positioned to face volatility and power prices than partial contracted ones.
In that regard, counterparty risk is a big concern, particularly in oil and gas projects with off-takers, commercial customers, and industrial users. According to the firm, merchant exposure weak contractual projections, raising higher rating volatility trends.