SAO PAULO--()--Fitch Ratings has assigned an expected National Rating of 'AA(bra)(exp)' with a Stable Outlook to the fourth simple debenture issuance proposed by Rodovia das Colinas S.A. (Colinas), in the amount of BRL850 million to be due in 2023.
Key Rating Drivers
Proven and resilient traffic base: Since the beginning of the concession, Colinas has delivered a solid traffic performance, posting a strong traffic CAGR 07-12 of 6.6% (vehicle-equivalent) and reaching an average elasticity to GDP of 2.07. Traffic volume has been resilient over the last financial crisis, showing an increase of 3.4% and 6.9% in 2008 and 2009, respectively. Light vehicles participation has historically increased, reaching almost 50% of tolled traffic in 2012 leaving the road less exposed to economic downturns. Fitch believes that competition risk is partially mitigated by the established position of the road in the transportation of goods in the region and the rapidly growing industry in the area.
Adequate Rate Setting Ability: The concession agreement establishes an annual price increase to fully pass through inflation. Rates are contractually adjusted by inflation and the increases have been carried out without traffic being negatively affected. From 2012 onwards, the previous index IGPM was replaced by IPCA, still fully linked to inflation. If IPCA is lower than IGPM it still triggers economic balance. No relevant lags exist.
Adequate Infrastructure Development: Entering in its 13th year of concession, Colinas has already concluded most of the obligatory expansion and infrastructure adequacy works. Pending expansion works represent less than 25% of the total construction budget and do not impact significantly revenues and traffic volume. Maintenance program is clearly detailed by the concession agenda, and next major maintenance cycle will start in 2017.
Cost overrun risk mitigated: Due to the fact that there are no long-term, fixed agreements for expansion works, there is some cost escalation risk. Mitigations are that this is a mature, brownfield road, with an experienced operator, and limited necessity for expansion works. Besides, the project withstands some cost increase. According to Fitch's sensitivity analysis, the project could repay debt even in a scenario of 58% of Capex above budget.
Weak debt structure: Rated Debentures have no reserves for debt service or O&M. Although receivables pass through a centralizing account, retention or preferred payment to debt holders is only triggered in case of early redemption. There is no dividend distribution test. Additional unsecured leverage that does not exceed the financial covenants is allowed, but they would not share the guarantees. Fitch believes that this risk is partially mitigated by the existing financial covenants that limit leverage at moderate levels: i) Net Debt / EBITDA (LTM) <= 3.5x; ii) DSCR > 1.2x (covenant is only triggered if DSCR is below 1.2x for two consecutive semesters).
Strong Debt Service Coverage Ratios: Under the base scenario, the average and minimum debt service coverage ratios (DSCRs) were 2.19x and 1.37x, respectively. Under the Fitch rating scenario, the average and minimum DSCRs were 1.95 times and 1.22 times. Debt service coverage is according to the proposed rating and consistent with its peer characteristics. According to Fitch's sensitivity analysis, the project could repay debt even in a scenario of negative GDP performance. This analysis considered the agency's base case assumptions but an annual performance of GDP of -1.5% between 2013 and 2020.
What Could Trigger a Rating Action
The expected rating on Colinas proposed issuance could be affected in case of:
--Debt profile substantially different from expectations;
--Consistent and significant deviations from the expected operational performance.
The debentures will be issued as unsecured. The real guarantees mentioned below will be assigned to the debentures after the implementation of the following suspensive clauses: i) full amortization of the 3rd debentures issuance (bridge loan), which should take place simultaneously with the settlement of the 4th debentures issuance; and ii) publication of Artesp's (regulatory agency) approval to the issuance and constitution of guarantees. The indenture will be amended after conclusion of the first suspensive clause, when the debentures will have their status changed to secured by real guarantees.
--Pledge of 100% of issuer shares, --Fiduciary assignment of all rights related to the concession, including receivables, facilities and assets.
--Fiduciary lien on shareholders renumeration.
The debentures will be issued by Colinas, a special purpose company (SPV) created in 2000 with the purpose of renewing, operating and maintaining four roads in the countryside of the state of Sao Paulo. The issuer expects to issue BRL850 million, divided in up to three series, with different costs and maturity.
The issuance is an R$850 million amortizing debenture and proceeds will be used to refinance current debt (bridge loan) to extend concession's debt maturity. The intent is to have a public issuance subject to approval by the CVM. Additionally, if there is no subscription of public debentures, the Company has firm guarantee from the creditor banks that they will subscribe to these debentures, with the debt profile increasing its maturity for another 90 months (for the first and second tranches ) and 120 months (for the third tranche).
The concession of Colinas was granted in 2000 for a 20-year period. In 2006, an economic equilibrium was approved by the grantor, which extended the concession term by eight years and compensated the Concessionaire for higher taxes and non-forecasted investments, totalling a 28 year concession period.
Colinas has historically delivered solid revenue growth, benefiting from inflation linked tariffs and consistent volume growth. Net Revenues have posted a CAGR 07-12 of 14.1% and EBITDA CAGR 07-12 of 25.9%
Traffic growth has been strong with a CAGR 2007-2012 of 6.6% vs. an average GDP growth of 3.2% in the same period. Traffic has been resilient even during the recent financial crisis, posting a performance of +6.9% in 2009 vs. -0.3% of GDP. Due to important industrial zones surrounding Colinas' highways, around half of the traffic (50.9% in 2012) is composed by heavy vehicles. Light vehicles have been historically increasing, leaving the road less exposed to economic downturns.
On-going capital expenditures are generally low and have been historically funded over the years by operating cash flows. More than 75% of a total of around BRL 936 million investments has been undertaken. The maintenance program is clearly detailed in the concession. The remaining capex and maintenance is estimated at around BRL234 mn and BRL160 mm respectively spread over the next seven years.
Additional information is available at 'www.fitchratings.com' or at 'www.fitchratings.com.br'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Methodology for Infrastructure and Project Financing' (July 11, 2012);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels' (Aug. 2, 2012).
Applicable Criteria and Related Research
Rating Criteria for Toll Roads, Bridges, and Tunnels
Rating Criteria for Infrastructure and Project Finance