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Adani Transmission Step-One Limited Additional Discussion Report: Post-2026 Bond Refinancing Monitoring Issues

Adani Transmission Step-One Limited Additional Discussion Report: Post-2026 Bond Refinancing Monitoring Issues

1. Purpose and Treatment

This report organizes the Q&A conducted in the discussion as a supplementary note for reading the existing ADTIN issuer_summary. It does not re-verify new primary sources, and claims made in the discussion are not adopted here as verified new facts.

The baseline points already confirmed in the existing report are that the ADTIN 2036 notes are not ordinary corporate bonds of AESL itself, but secured, scheduled-amortisation restricted-group notes dependent on the transmission-asset cash flows of the ATSOL obligor group; that DSCR was 1.89x as of end-September 2025; that receivables over 180 days were zero; and that asset availability was broadly in the 99% range. By contrast, the central issue examined in the discussion was whether, after the refinancing of the 2026 notes, the substantive protection buffer from the perspective of 2036 noteholders has genuinely improved, or whether it has been diluted by the new 2041 notes, hedging, distributions, related-party transactions, or regulatory recovery lags.

2. Reading from the Discussion

The overall reading from the discussion can be summarized as follows: the refinancing of the 2026 notes should not be treated simply as a reduction in maturity risk. Instead, the first ATSOL compliance certificate after the refinancing should be used to check, at the same time, how DSCR, DSRA, receivables, distributions, hedge- and RCF-related costs, security sharing, and the account waterfall have moved.

The support factors already confirmed in the existing summary are stable transmission assets, regulated and contracted revenue, DSCR of 1.89x, zero receivables over 180 days, DSRA, and security and account control. However, the discussion organized these support factors as “baseline points from before the refinancing or from a point in time that did not fully reflect the refinancing.” It concluded that one cannot assert that the same buffer remains after the refinancing unless the coupon on the new 2041 notes, hedge costs, DSRA requirement, distribution conditions, and pari passu / shared-security relationship with the 2036 notes are confirmed.

On the operating side, the discussion presented the hypothesis that early deterioration at ADTIN would be more likely to appear through lengthening receivables, an increase in working capital loans, line-by-line availability falling below normative levels, higher O&M and maintenance capex, and continued distributions despite a decline in DSCR, rather than through fluctuations in Indian power demand. In addition, deterioration in Adani Group headlines was framed as a focal issue not in itself, but insofar as it enters the cash or security package of the ATSOL obligor group through distributions from the restricted group, cash outflows to related parties, guarantees or security provision, or group-supportive transactions.

3. Confirmed Items, Discussion Claims, and Unconfirmed Items

Category Content Treatment in this Report
Confirmed in the existing report ADTIN is a restricted-group note to be analysed primarily on the basis of the transmission-asset cash flows of the ATSOL obligor group. DSCR was 1.89x as of end-September 2025, receivables over 180 days were zero, and asset availability was broadly in the 99% range. Treated as the baseline for this report.
Confirmed in the existing report The announced USD 500mn private placement primarily intended to refinance the 2026 notes could ease short-term maturity concentration risk. Treated as a potential positive factor, but its substantive impact on the 2036 notes remains unconfirmed.
Discussion claim Depending on the treatment of interest on the new 2041 notes, hedging, account restrictions, security sharing, and guarantees, the protection buffer for 2036 noteholders could be diluted. Treated as a hypothesis. Confirmation through issuance documents and trustee materials is required.
Discussion claim If a decline in DSCR, DSRA shortfall, continued distributions, receivables over 180 days, an increase in working capital loans, and higher hedge costs emerge at the same time, it would be difficult to describe the refinancing as an improvement in protection even if the refinancing itself has succeeded. Treated as a practical warning line.
Unconfirmed item Pari passu ranking between the new 2041 notes and the 2036 notes, security sharing, DSRA requirement, account priority, distribution restrictions, and hedge contract terms. Items for next verification. Not stated as verified facts.
Unconfirmed item MERC asset end dates in 2034-2035 and the conditions for 10-year extensions, maintenance capex in the 2030s, and the timing of cash realization from regulatory true-ups. Treated as unconfirmed items for long-term holding.

4. Summary of Q&A Content

Main Question Purpose of the Question Key Points of the Answer Points Examined Further in Follow-up Credit Analytical Implication
After the refinancing of the 2026 notes, has the protection buffer for 2036 noteholders improved? To separate the reduction in short-term maturity risk from possible dilution of protection through pari passu debt, hedging, and account restrictions. The refinancing is a positive factor for short-term maturity risk, but it remains unconfirmed whether the new 2041 notes enter the same security package, ranking, and waterfall as the 2036 notes, and how they change the DSCR denominator or DSRA requirement. In the next certificate, confirm post-refinancing DSCR, DSRA sufficiency, distribution amount, receivables over 180 days, and hedge- and FX-related cash outflows. Caution is warranted if DSCR falls to the low 1.7x area or below and this coincides with DSRA shortfall, continued distributions, and higher hedge / RCF costs. Do not assess improvement in protection for the 2036 notes solely on the completion of the 2026 note refinancing. Treat it as an improvement factor only after reviewing post-refinancing actual DSCR and cash preservation.
Where could operating, regulatory, and collection stress in the transmission assets begin to break down? To understand which combination of deterioration factors could cause strong operating indicators, such as availability in the 99% range, to start affecting DSCR or distribution restrictions. Rather than a standalone decline in availability, lengthening receivables, delayed cash realization of regulated revenue, and increased working capital loans are more likely to be early signals. If higher O&M and capex coincide with deterioration in line-by-line availability, the situation moves closer to structural deterioration. As the dividing line between temporary cash-conversion delay and structural deterioration, monitor the combination of 121-180 day receivables migrating into the over-180-day bucket, successive increases in working capital loans, line-by-line availability falling below normative levels, and continued distributions despite DSCR decline. DSCR of 1.89x as of end-September 2025 is only a baseline. If receivables ageing, working capital, DSCR, and distributions deteriorate simultaneously, the historical buffer should be discounted.
Under what conditions can the ring-fence still be relied upon if Adani Group deteriorates? To distinguish whether deterioration in Group headlines affects only market sentiment or enters the cash, security, or guarantees of the ATSOL obligor group. The condition for continuing to view ADTIN as a restricted-group note is that distributions, related-party loans, guarantees / security provision, working capital loans, and DSRA replenishment are not deteriorating simultaneously. The focus is not Group deterioration itself, but external leakage of restricted-group funds and security. As the first practical check, assess whether continued distributions, increases in related party loans / advances / receivables, increases in working capital loans, and guarantees or security provision for Group debt appear simultaneously when DSCR or DSRA is weak. Even if availability and receivables remain stable, an increase in cash outflows to related parties or guarantees / security provision would warrant a more conservative reassessment of the ring-fencing assumption as project finance.
Through which channels would a deterioration in the interest-rate, FX, and hedge environment affect the 2036 notes? To confirm which indicators would first show the impact of hedge, interest-rate, and FX-related cash outflows in a structure that supports US dollar debt with rupee-denominated transmission revenue. The first impact would not be FX valuation gains or losses themselves, but interest servicing, RCF interest, hedge settlement / finance cost, working capital loans, the DSCR denominator, and the DSRA requirement. The existence of hedging and the lightness of hedge maintenance costs are separate issues. As the dividing line between temporary cost increase and structural decline in protection, monitor the simultaneous emergence of increases in interest / hedge / RCF costs, successive increases in working capital loans, DSCR in the low 1.7x area or below, delayed DSRA replenishment, and continued distributions. Even if the transmission assets remain stable, the financial structure could erode the protection buffer. There are situations in which operating KPIs alone are insufficient to explain the risk of the 2036 notes.
Are licence, regulatory, and asset-life assumptions sufficiently covered through the 2036 maturity? For long-term holding, to separate the formal length of licence periods from the ability to absorb maintenance capex, regulatory recovery, and scheduled amortisation. CERC assets cover the 2036 maturity based on existing end dates, while the discussion organized the confirmation of 2034-2035 end dates and 10-year extension conditions for the MERC assets Tiroda-Warora and Tiroda-Aurangabad as important. From around 2030, monitor the combination of MERC extension conditions, line-by-line availability relative to normative levels, increases in O&M and maintenance capex, cost disallowance and true-up delays at CERC/MERC, working capital loans, and continued distributions. Long-term risk could materialize not as a one-off equipment problem, but as a timing mismatch between asset-maintenance investment and regulatory cash recovery. For the remaining life of the 2036 notes, analysis should not rely only on single-year DSCR.

5. Monitoring Items and Candidates for Transfer to issuer_notes

The issues that should be treated as candidates for transfer in future research and issuer_notes updates are narrowed to the following. None of them is immediately reflected in issuer_notes in this report, and unconfirmed items remain treated as unconfirmed.

Follow-up Item Practical Warning Line Materials / Information to Check Next Candidate Text for issuer_notes
Post-2026 bond refinancing debt service schedule, DSCR, and DSRA A case where post-refinancing DSCR falls to the low 1.7x area or below, and this coincides with failure to meet the DSRA requirement, continued distributions, and increases in hedge- and RCF-related costs. The first ATSOL compliance certificate after the refinancing, the Note Purchase Agreement / Common Terms Deed for the new 2041 notes, DSRA requirement, and debt service schedules for the 2036 and 2041 notes. Following the refinancing of the 2026 notes with the new 2041 notes, the effectiveness of DSCR, DSRA, distribution restrictions, and security sharing from the perspective of 2036 noteholders remains unconfirmed and should be rechecked in the next certificate.
Receivables, working capital, and line-by-line availability A case where 121-180 day receivables migrate into the over-180-day bucket, working capital loans increase for several consecutive periods, line-by-line availability moves close to or below normative levels, and DSCR declines at the same time. Subsequent ATSOL compliance certificates, line-by-line availability, receivables ageing, working capital loans, and actual O&M and capex. If receivables move into the over-180-day bucket, working capital loans increase for consecutive periods, and line-by-line availability falls below normative levels at the same time, the stability of transmission-asset cash flows should be reassessed more conservatively.
Ring-fencing during Adani Group deterioration A case where, in a phase of DSCR decline or delayed DSRA replenishment, continued distributions, increases in related party loans / advances / receivables, increases in working capital loans, and guarantees or security provision for Group debt appear at the same time. ATSOL compliance certificates, special purpose combined financial statements, related-party transaction notes, guarantees / security / contingent liabilities notes, and trustee certificates. During deterioration in Adani Group headlines, the effectiveness of the ATSOL obligor group ring-fence should be checked through the presence or absence of continued distributions, cash outflows to related parties, and guarantee / security provision.
Interest-rate, FX, and hedge costs A case where increases in interest servicing / RCF interest / hedge-related cash outflows, successive increases in working capital loans, DSCR in the low 1.7x area or below, delayed DSRA replenishment, and continued distributions occur at the same time. Post-refinancing compliance certificates, breakdown of finance costs, hedge settlement / collateral posting, RCF usage, and maturity / renewal conditions for hedge contracts. Even if availability and receivables are stable, if increases in hedge, RCF, and working-capital costs pressure DSCR and DSRA, the protection buffer for the 2036 notes should be reassessed from a financial-structure perspective.
MERC asset licence extensions and maintenance capex in the 2030s A case where MERC asset extension conditions are not clarified by the early 2030s, and this coincides with line-by-line availability decline, increases in O&M and maintenance capex, true-up delays or cost disallowance, successive increases in working capital loans, and continued distributions. Materials related to MERC licence extensions, MERC tariff / ARR / true-up orders, CERC/APTEL dispute status, asset-by-asset maintenance capex plans, and long-term line-by-line availability trends. The 2034-2035 end dates and 10-year extension conditions for MERC assets should continue to be monitored as assumptions for business continuity and regulatory recovery through the maturity of the 2036 notes.
Distribution behaviour and creditor protection A case where distributions continue in a phase where any of the following is present: DSCR in the low 1.7x area or below, delayed DSRA replenishment, occurrence of receivables over 180 days, successive increases in working capital loans, or higher maintenance capex. Distribution made and distribution account transfer in compliance certificates, DSCR test, cash trap / distribution lock-up conditions, and the Project Account Deed / Common Terms Deed. If distributions continue during deterioration in DSCR, DSRA, receivables, or working capital, the effectiveness of cash preservation from the perspective of 2036 noteholders should be reassessed more conservatively.

6. Unconfirmed Items

Even after this discussion, the following items remain unconfirmed for assessing the substantive protection buffer for 2036 noteholders.

7. Reference Context