Rating Action: Moody's affirms Açu Petroleo's Ba2 rating, stable outlookGlobal Credit Research - 08 Feb 2022New York, February 08, 2022 -- Moody's Investors Service ("Moody's") has today affirmed the Ba2 rating of the senior secured notes issued by Açu Petróleo Luxembourg S.À R.L. ("Issuer") and guaranteed by Açu Petroleo S.A.'s ("Company", "Açu Petroleo") in the amount of $600 million and final legal amortization in 2035. The outlook is stable.Affirmations:..Issuer: Acu Petroleo Luxembourg S.A R.L.....Gtd Senior Secured Global Notes, Affirmed Ba2RATINGS RATIONALEThe rating affirmation follows Açu Petroleo's proposal to execute an additional Eligible Credit Instrument ("ECI") in the amount of $250 million which, in addition to another initial $350 million ECI.In our view, the issuance of the proposed Eligible Credit Instrument ("ECI") does not materially impact the key credit drivers and brings some cash flow gains leading to an average DSCR of 2.0x above our 1.8x prior base case. Nonetheless, we recognize the new structure is more complex and adds counterparty and currency risk which is mitigated by the credit quality of the facilities providers as well as the liquidity reserves embedded in the project finance structure. Counterparty risk is also mitigated by (i) short-lived exposure of about 3 days (between Guarantor´s transfer date and receivable by the Issuer); (ii) The 6 months DSRA pre-funded cash reserve within the project that would cover for a delay scenario; (iii) the counterparties are local financial institutions rated by Moody´s above the Note´s rating.Açu Petroleo's Ba2 rating incorporates the port's strong asset features, as the only private terminal of oil transshipment in the country, which is strategically located near to pre-salt reserves and mature fields in Campos and Santos Basin. Given the favorable market position the company will benefit from future increases in Brazil's offshore oil production. Moody's view is that Brazil's exports of crude oil production will grow significantly over the medium-term with oil prices in the range of $50-$70/barrel (bbl), coupled with limited domestic refining capacity and no significant increase in utilization rates forecasted. At the same time, Moody's expects Brazil's oil production to grow even in a scenario of lower oil prices (e.g. $40/bbl), given the relative lower breakeven prices on pre-salt oil fields, as well as a slew of projects under development.The project finance debt structure provides additional protections to creditors that further support the rating, such as a fully amortizing debt structure that yields to an average DSCR of 2.0x over the life of the transaction; 6-month DSRA and OMRA funded with cash at closing (could be replaced by eligible letters of credit non-recourse to the Company or subordinated to the senior rated debt); rights on future receivables, pledge of the port's assets (primary physical assets are the jetty, breakwater and related infrastructure) and shares of the Açu Petroleo to ensure step-in rights under an event of default. The structure also encompasses a clear cash sweep mechanism for target amortization payments in the event of excess cash generation, along with distribution tests and limitations on the incurrence of additional debt. Nonetheless, the debt structure allows for the issuance of additional debt and incorporation of subsidiaries under certain scenarios that could constrain the rating in the future. Still, any further leverage or acquisition is subject to certain financial covenants and ratings affirmation. Moody's Base Case rating scenario considers an additional debt issuance of about $75 million for port expansion in connection with the Company's "access channel" expansion, which could be triggered around 2028 once historical DSCR reaches the minimum threshold of 1.50x and average volume levels of 800,000 barrels per day in the preceding twelve-month period.The rating is also constrained by the exposure to revenue volatility due to the lack of long-term take-or-pay contracts and partially contracted structure during the life of the transaction. The port is exposed to re-contracting risk and ultimately to the volatility in oil prices, as the majority of the existing transshipment operations agreements will be expired by 2023. The longer contract in the portfolio is with Shell Plc (Aa2 stable), but it is expected to gradually decrease from 55% of total revenues in 2022 to 10% by 2036 in Moody's Base Case scenario.Also, the port's ownership structure encompass contractual arrangements under which Açu Petroleo is subject to a Port Access Contract with rights to use of port facilities held by Ferroport Logistica Comercial Exportadora S.A. ("Ferroport") subject to a fee payment. Both companies share the dredging costs. Still, the priority of use of port facilities remains with Ferroport, which apply exclusively for the vessel traffic on the access channel (i.e, iron ore vessels have priority over oil tankers to inbound/outbound maneuvers). Under certain conditions, Anglo American Minerio de Ferro Brasil ("AAMFB"), 50% owner of Ferroport iron ore terminal, has the right to obtain an injunctive relief in aid of an arbitration procedure to require Açu Petroleo to modify or suspend shipments activities. Despite this contractual weakness, Moody's views the likelihood of this happening is reduced given the economic incentives in the contractual relationship between the two companies and comprehensive contractual features that mitigate the risk of AAMFB from taking an unreasonable action to halt Açu Petroleo's activities.Moody's does not consider ESG risks as key drivers of this rating action. Environmental risks are mitigated by the licenses and the complexity of the ports operation at the same time Brazilian oil production remains attractive in the medium-term due to the low breakeven cost of the pre-salt exploration. At the same time, the off -- takers profile and exportation diversification minimizes exposure to social risks. Finally, governance considerations represent a low risk, given the underlying contractual features and the overall protections embedded in the proposed project finance structure.OUTLOOKThe stable outlook reflects our view of steady growth of oil transshipment volumes handled by the port supporting an average legal DSCR of 2.0x for the life of the transaction, as well as the maintenance of all licenses and of the long-term O&M Agreement with Oiltanking. The stable outlook also incorporates the assumption of continuing degree of the current level of commitment from the ultimate shareholders to the Company and from AAMFB to the port of Açu´s operations.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGWhile we do not expect a rating upgrade in the short to medium term given the stable outlook, higher transshipment volumes for a prolonged period or revenue stability supported by a larger portion of long-term take-or-pay contracts could trigger upward pressure on the rating. An upgrade would also require lower leverage profile, consistent with a higher rating category, such as DSCR above 2.5x.The rating could be downgraded if there is a sustained deterioration in the Company´s operating performance such that legal DSCR remains below 1.5x on sustained basis. Negative rating pressure could arise if (i) the expected proportion of long-term ToP volume declines, (ii) re-contracting the excess capacity at less favorable terms, or (iii) if there is a deterioration in the shareholder's or AAMFB commitment to the port operations that is detrimental to the credit quality of the Company. Also, negative pressure on the Notes rating would increase with Moody's perception of structural subordination arising from non-recourse debt issuance at permitted project finance subsidiaries of Açu Petroleo. Deterioration in Brazil´s sovereign credit quality Government of Brazil (Ba2 stable) could place also downward pressure on the rating as well as deterioration in the credit quality of the Eligible Credit Instrument "ECI" providers, which are local financial institutions or reversal of the anticipated cash flow benefits.COMPANY PROFILEThe Issuer is a private limited liability company incorporated and existing under Luxembourg, which is fully owned by Açu Petroleo. Since 2016, Açu owns and operates the largest private crude oil transshipment terminal in Brazil, the oil terminal (T-OIL) of the Port of Açu, which currently is the only private infrastructure in Brazil capable of receiving VLCC class ships -- with a cargo capacity of up to two million barrels. Açu Petroleo is part of the Port of Açu, a complex built and operated by Prumo Logística S.A. (not rated), located in the State of Rio de Janeiro, in Brazil. Its port license allows the movement of 1.2 million barrels per day (bpd) and the depth of the terminal is 25 meters. For the nine-month period ended September 30, 2021, Açu Petroleo handled 325,000 bpd in 93 operations.The principal methodology used in this rating was Privately Managed Ports Methodology published in May 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1129671. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor 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. 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