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Research Update: Hallett Hill No 2 Outlook Revised To Stable On Improved AGL Prospects; 'BBB' Issue Rating Affirmed


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Research Update: Hallett Hill No 2 Outlook Revised To Stable On Improved AGL Prospects; 'BBB' Issue Rating Affirmed

Rating Action Overview

  • We see an improvement in the counterparty risk for the Australia-based Hallett Hill No 2 Pty Ltd. (HH2) project arising from potential improvement in earnings and margins of its key counterparty AGL Energy Ltd. (AGL).
  • AGL remains an irreplaceable counterparty for HH2 and our view of AGL's creditworthiness caps our view on HH2's debt issue rating.
  • On May 29, 2023, S&P Global Ratings revised its outlook on HH2's debt to stable from negative. At the same time, we affirmed the 'BBB' issue credit rating.
  • The stable outlook reflects our view of AGL's credit quality.

Project Description And Key Credit Factors

HH2 is the owner of the Hallett Hill 2 wind farm, located 200 kilometers north of Adelaide, the capital city of the state of South Australia (SA). The wind farm has a total capacity of 71.4 megawatts (MW), comprising 34 x 2.1MW turbines. The wind farm was built by AGL Energy Ltd., which sold it in 2008 to Energy Infrastructure Trust, a wholesale unlisted unit trust focused on infrastructure assets.

As part of the transaction, AGL (through its subsidiary AGL Hydro) entered a 25-year offtake contract on a take-or-pay basis. Under the contract, AGL will acquire all the electricity generated by the wind farm in return for a consumer price index (CPI)-linked fixed payment profile.

Construction was completed in January 2010 and the offtake agreement runs until January 2035. AGL also manages the asset at a CPI-linked fixed payment profile under the asset management deed and takes on the operating and performance risk until the end of the offtake agreement.

  • HH2 continues to benefit from stable and predictable cash flow from AGL, with no exposure to wind or performance risk.
  • AGL is an established offtaker and an experienced operations and maintenance (O&M) operator, which in our view continues to support the issue rating.
  • All else being equal, a worsening of our view of AGL's creditworthiness would impact the issue rating on HH2.
  • Refinancing risk in June 2027, but sufficient buffer due to stable cash flows.

Rating Action Rationale

We have revised the outlook on HH2 to stable based on our expectation of improving credit metrics of its key counterparty, AGL.  Given that AGL is the sole offtaker and operator, HH2 relies heavily on AGL's performance. Our view on HH2's debt depends on our assessment of AGL's creditworthiness.

While AGL remains exposed to competitive energy markets, its EBITDA should see an improvement in fiscal 2024 and beyond as its legacy electricity contracts (typically entered for two- to three-year periods) roll off, and the benefits from higher wholesale electricity prices in the past couple of years start to show effect. This should enable AGL to maintain its ratio of debt to EBITDA well below 3.0x over the next two to three years.

Improving earnings and the track record of AGL in managing its financial leverage will continue to support our current view of its stable credit quality.

HH2 has a 25-year take-or-pay offtake contract with AGL, under which AGL acquires all the electricity generated by the wind farm in return for a fixed payment. HH2 also has a 25-year asset management deed with AGL under which AGL is ultimately responsible for operating and maintaining the wind farm. This arrangement effectively transfers all wind and operational risk to AGL. HH2 receives fixed monthly net payments from AGL sufficient to cover debt service irrespective of the actual availability and capacity factor. Hence any variation in project performance does not impact debt serviceability.


The stable outlook reflects primarily our view of AGL's credit quality, which caps the issue rating on HH2's debt.

Downside scenario

We could lower the debt rating on HH2 if:

  • We considered AGL's credit quality had worsened; or
  • AGL was to be replaced, and the terms and conditions of the new contract were to be less supportive, such as the project taking on additional operating risks.

Although highly unlikely, the rating could also face pressure if the cash flow coverage were to become materially weaker than our expectations, such as the minimum debt service coverage ratio (DSCR) falling to about 1.13x.

Upside scenario

All else being equal, we could raise the debt rating on HH2 only if our view of AGL's credit quality improves, such that we consider AGL is able to sustain its ratio of debt to EBITDA to below 2.0x.

Rating Score Snapshot

Senior debt issue rating BBB
Operations phase (senior debt)
Asset class operating stability: 4
Operations phase business assessment: 2
Preliminary operations phase SACP a-
Downside resiliency assessment and impact: High
Liquidity impact: Neutral (No impact)
Refinancing impact: Neutral (No impact)
Holistic analysis impact: Neutral (No impact)
Structural protection impact: Neutral (No impact)
Counterparty assessment impact: bbb (capped)
Operations phase SACP bbb
Parent linkage and external influences (senior debt)
Parent linkage: Delinked
Project SACP: bbb
DSCR--Debt service coverage ratio. ICR--Issuer credit rating

Related Criteria

Ratings List

Ratings Affirmed

Hallett Hill No 2 Pty Ltd.

Senior Secured BBB/Stable

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Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at for further information. Complete ratings information is available to subscribers of RatingsDirect at All ratings affected by this rating action can be found on S&P Global Ratings' public website at Use the Ratings search box located in the left column.

Primary Credit Analyst:Harshvardhan Sathe, Melbourne + 61 (3) 96312118;
Secondary Contact:Meet N Vora, Sydney + 61 2 9255 9854;

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