Rating Action: Moody's places Bons Ventos da Serra 2's ratings under review for downgradeGlobal Credit Research - 13 Apr 2021Sao Paulo, April 13, 2021 -- Moody's América Latina Ltda., ("Moody's") has today placed under review for downgrade the Ba2/Aa3.br ratings assigned to Geradora Eolica Bons Ventos da Serra 2 S.A.'s ("BVS 2", the "project" or the "issuer") BRL 56.5 million senior secured debentures due in 2033. The outlook was changed to ratings under review from stable.RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe rating action reflects the project's lower than anticipated power generation performance since its inception, but particularly in 2020, with energy volumes produced in this year representing 90.7% of its contractual obligations, down from the 98.2% achieved in 2019 and also below the 93.7% achieved during the project ramp-up phase in 2018. The commitments for energy delivery under the power purchase agreements (PPAs) represent 96.4% of the aggregate physical guarantee energy of the five wind farms. Based on wind studies carried out by third parties (Camargo Schubert and Inegi), the volumes sold stand 6.5% below the expected generation in ten-year P90 scenario and 1.9% below the one-year P90 scenario.The continued power generation underperformance might hurt the project's average Moody's DSCR in the long term and pressure cash flow generation in 2022, when the quadrennial adjustment is expected to be settled. Moody's updated projections indicate now that the average DSCR from 2021 through 2030 might decrease to 1.19x from 1.34x as anticipated when the rating was first assigned. With minimum DSCR in 2022, close to 1.0x. The issuer's outstanding unrestricted cash of BRL35 million as of December 2019, if not used to cover other needs, mitigates the cash generation pressure in 2022.In addition to a worse-than-expected performance, we consider that the decrease of certain financial completion thresholds -- such as the change in the minimum 12-month generation volume to 309 GWh (equivalent to the contractual commitment of the PPAs) from 321 GWh (equivalent to the physical guarantee) -- to add risks related to release of guarantees before our initial expectation.Adding more uncertainty to the project's future cash needs is a contingent liability of BRL42 million, reported as of December 2019 and equivalent to 0.8x 2019 net revenues or 16% of debt, which is related to an arbitration dispute with the project's turbines supplier and O&M operator, WEG Equipamentos Elétricos S.A.. The provisioned amount refers to the amount disputed between the two parties. An adverse outcome on this dispute could create additional negative cash flow pressures to the project, which are not currently fully reflected in our base case scenario.The review process will focus on the project's ability to present improved operating performance compared to what has been seen since 2018. Given the change in some financial completion thresholds, the review process will also consider the project's ability to maintain its guarantees in place, in line with our initial expectations, and in particular considering the cash flow pressures with the settlement of the quadrennial balances or judicial disputes through 2022 .The Ba2/Aa3.br ratings continue to reflect BVS 2's long term project's revenue profile, composed of 20-year power purchase agreements (PPAs) set at fixed prices that are adjusted annually by inflation, which are at approximately BRL173/MWh in current prices. The project's PPAs were signed in New Energy Auctions (LEN), which benefit from a quadrennial revenue settlement mechanism to address the intermittent nature of the wind resource that allows one specific year of generation deficit to be compensated by another year's generation surplus within a four-year period prior to revenue deductions. The ratings also factor in a diversified off-taker base that comprises 35 operating utilities in Brazil belonging to fifteen different economic groups. In Moody's view, the average off-takers credit quality is commensurate to Ba2.The ratings could be stabilized when we have more visibility of improved power generation performance and resolution of the issuer's dispute with its mains supplier and O&M operator, with average Moody's DSCR consistently above 1.3x.The ratings could be further downgraded if performance continues to deteriorate compared to our expectations or Moody's DSCR metrics remain consistently below 1.2x. A deterioration in the off-takers base credit quality could increase negative rating pressure, as well as our perception of a decline in the level of consistency and predictability of the Brazilian business environment for the electricity sector. The release of guarantees before our initial expectation could also result in a multi-notch downgrade.The issuer BVS 2 is an operating holding company that owns five wind farms forming the BVS 2 complex, composed of: Bons Ventos Cacimbas 2 (23.1MW), Bons Ventos Cacimbas 3 (14.7MW), Bons Ventos Cacimbas 4 (10.5MW), Bons Ventos Cacimbas 5 (21.0MW) and Bons Ventos Cacimbas 7 (16.8MW), with a total installed capacity of 86.1MW and assured energy of 36.6MW average. Located in the municipalities of Ubajara and Ibiapina, in the northeast of the state of Ceará, the project has 41 generator turbines of 2.1 MW (Model WEG AGW110) each with 120 meters in concrete towers and has been 100% operational since July 2018. The project is sponsored by Servtec Investimentos e Participações Ltda. (50%, unrated) and Nexus Investimentos, Participações e Locações Ltda (50%, unrated), which invested approximately BRL285 million for development.The principal methodology used in these ratings was Power Generation Projects Methodology published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1236893. Alternatively, please see the Rating Methodologies page on www.moodys.com.br for a copy of this methodology.Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. 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