Registro Mercantil de Madrid, Tomo 183543, Libro 0 ,Folio 21, Sección 8, Hoja M‐218152 Cif‐B81975385 UGS CASTOR – Report 04/04/2014 Dear Sirs, Please be aware that Fitch Ratings has made a press release on 28 March 2014 stating that: “Fitch Ratings maintains Watercraft Capital S.A.'s (Castor Gas Storage) EUR1.4bn secured bonds (rated BBB+) on Rating Watch Negative (RWN).” Please find attached the full press release. ESCAL UGS, S.L. Madrid, 4th March 2014 Sede Social San Francisco de Sales, 38 28003 Madrid. España T (+34) 91 535 77 01 F (+34) 91 535 20 15 www.escalugs.com Planta Operaciones Ctra. CV‐11 – p.k. 19.550 Apartado de Correos 347 12500 Vinaròs. Castelló T (+34) 964 02 94 94 F (+34) 964 02 94 96 Pag. 1 de 1 FITCH MAINTAINS CASTOR GAS STORAGE BONDS ON RATING WATCH NEGATIVE Fitch Ratings-London-28 March 2014: Fitch Ratings is maintaining Watercraft Capital S.A.'s (Castor Gas Storage) EUR1.4bn secured bonds (rated BBB+) on Rating Watch Negative (RWN). The RWN reflects continued high uncertainty over the future of the Castor Gas Storage project and the implications for bondholders following unexpected seismic activity in the project's vicinity in 3Q13. Developments in the near term could take one of four paths: (1) the inclusion of the assets in the national remuneration system under the 'Transitory Remuneration' regime; (2) concession relinquishment by the project company; (3) the triggering of the project sponsors' ACS SCE's obligation to prepay the bonds in November 2014; or (4) concession termination by the government. In our view, ACS SCE is incentivised to resolve the issue as it is committed to prepay the senior bonds under the sponsor support agreement if the project is not included in the remuneration system by 30 November 2014. Fitch placed the rating on RWN on 1 October 2013 following the order by the Spanish authorities to pause the activity at Castor gas storage plant due to unusual seismic activity in the project's vicinity (off the coast of Valencia) that commenced after a cushion gas injection cycle was completed. The Ministry of Industry ordered to stop the gas injection in the reservoir, and had requested detailed reports from the country's National Geographic Institute (IGN) and from the Geological Survey Institute of Spain (IGME). KEY RATING DRIVERS Preliminary indications are that the results of the studies by the two official institutes are inconclusive and additional investigations may be conducted. The authorities have also been provided with the results of the studies commissioned by the project company (ESCAL UGS), which we believe concur that the seismic activity was caused by a secondary fault line and not by Castor reservoir's fault line. The issue is highly complex as well as politically and socially sensitive, and the authorities may delay any decision until a conclusive view on the seismic issues is formed. In our view, the project will not be able to get back on track in line with the original schedule and re-start 'cushion gas' injection any time soon. There is a possibility of an interim solution whereby the project's assets are included in the remuneration system under 'Transitory Remuneration' while the operations of the project remain suspended until further investigations are completed and a firmer political view is formed. Favourably, the outcome of the technical and financial audit of the project conducted by the authorities is positive, confirming that the project's investment cost of EUR 1.46bn is reasonable and the project's technical design is sound. In accordance with the regulatory provisions, the completion of this audit allows the project to be included in the remuneration system while other commissioning milestones (48h gas tests and definitive commissioning certificate) remain pending. At the same time, the second payment date under the bonds on 30 June 2014 is approaching, and ACS SCE is expected to cover most of the debt service requirements as per sponsor support agreement. A Project Bond Credit Enhancement (PBCE) facility of EUR200m is also available for on-going payments of debt service. RATING SENSTIVITIES Fitch will review the RWN within the next three months. In the event that the project secures Transitory Remuneration status, this may be supportive of the current rating level, depending on the timing and amount of the first remuneration payments as well as on the progress by the authorities towards the final decision on whether the gas reservoir should be re-opened or not. In the other scenarios, the rating is likely to be downgraded by at least one rating category (three rating notches) due to the reliance on ACS SCE and the untested concession compensation regime to repay the bonds. Compensation provisions in case of concession termination by the government or relinquishment of the concession by the project company are favourable on paper, but lack precedents and are not sufficiently clear with respect to the actual payment mechanism and timing. Compensation payments are defined as 'net book value of the assets', subject to the assets remaining operational. Compensation may also be limited to 'residual value' in case of serious violations or intentional negligence of the operator. The concepts of 'net book value', 'residual value' and 'operational' are not well-defined under the regulation, and the determination of compensation payments would be at the government's discretion. Fitch gains some comfort that the presence of the European Investment Bank (EIB) as the PBCE provider and a bond investor mitigates the political risk to some extent. In addition, there is ample liquidity within the project structure under the sponsor support agreement with ACS SCE and the PBCE facility to support debt service in the interim phase. The PBCE could also be used to supplement termination payments to repay the bonds. Key Rating Factor Assessments: Completion Risk - Weaker Revenue Risk - Midrange Operations Risk - Midrange Infrastructure Renewal - Midrange Debt Structure - Stronger Contact: Primary Analyst Jelena Babajeva Director +44 20 3530 1375 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Federico Gronda Senior Director +39 02 8790 87287 Committee Chairperson Dan Robertson Managing Director +44 203 530 1312 Media Relations: Francoise Alos, [email protected]. Paris, Tel: +33 1 44 29 91 22, Email: Additional information is available on www.fitchratings.com. Applicable criteria 'Rating Criteria for Infrastructure and Project Finance', dated 12 July 2012, 'Rating Criteria for Availability-Based Projects' dated 18 June 2013 are available at www.fitchratings.com. Applicable Criteria and Related Research: Rating Criteria for Infrastructure and Project Finance http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867 Rating Criteria for Availability-Based Projects http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710784 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/ UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. 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