These rating actions follow today's announcement by the New South Wales Government (AAA/Stable/A-1+) of an agreement on the restructuring of Reliance's financing. The outlook on the ratings remains developing.
"We think the restructure is a positive step for the Reliance Rail project, resolving a number of issues and bringing the focus back onto the trains," Standard & Poor's credit analyst Philip Grundy said.
"However, while downside pressure on the ratings may have reduced, the immediate risks around the drawdown of the A$357 million bank debt, and the delivery and ongoing operational reliability of the trains remain."
Standard & Poor's believes that the acquisition of 100% of Reliance Rail by the New South Wales government in 2018 under the restructure would likely give lenders some additional comfort around the long-term viability of the project, but it is still six years away. In the meantime, the directors of Reliance Rail are scheduled to issue the first drawdown notice under the bank debt facility before Feb. 26, 2012, with monthly drawings thereafter. However, it remains unclear to us whether the directors will be in a position to draw down the debt, or whether the banks will make the facility available.
Delivery and operational performance of the trains continue to underpin project risk. We understand that the trains are performing well and all parties from the government are satisfied with the product to date. The developing outlook encompasses the risk that the debt may not be drawn, leaving a funding gap in the project. If the bank debt is drawn according to schedule, the outlook on the ratings could return to stable. Furthermore, if the trains continue to be delivered and operate as required, there may be scope for the rating to improve.
Copyright Reuters, 2010