NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an expected rating of 'A(exp)' to Empresa de Transporte de Pasajeros Metro S.A.'s (Metro) proposed notes up to USD500 million, senior unsecured notes due in 2024. Proceeds from the note issuance will be used to fund capital expenditures and for general corporate purposes.
Fitch has also assigned the following ratings to Metro:
--Local currency Issuer Default Rating (IDR) 'A';
--Foreign currency IDR 'A';
The Rating Outlook is Stable.
Metro's ratings incorporate the support the company receives from the Chilean government through the financing of the majority of its capital expenditure plan. The ratings also reflect Metro's stable operating results, capital structure and adequate liquidity.
The Stable Outlook incorporates Fitch's expectation that the Chilean government will continue to support the implementation of the company's investment plan during the next years through the funding of approximately two-thirds of the required investments.
KEY RATING DRIVERS
SUPPORT FROM THE CHILEAN GOVERNMENT, SOLE SHAREHOLDER:
The ratings assigned to Metro consider the financial support the company receives from the State of Chile (Fitch IDR 'A+'). Fitch views the credit linkage between Metro and the Chilean Government as strong. This is reflected in significant legal, financial and strategic ties existing between Metro and the Chilean Government. Metro is a stock corporation that is indirectly wholly owned by the State of Chile. As of Sept. 30, 2013, CORFO, a 100% government-owned entity, held 61.66%, of Metro's outstanding shares. The Chilean government, through the Ministry of Finance, held the remaining 38.34%. Through these entities the Chilean government maintains and defines key aspects of Metro's capital structure, board of director's composition, investments plan, and funding strategy. The Chilean government provides financing to Metro's projects through the public budget, which is prepared by the government and approved by the Chilean Congress on an annual basis. The financial ties are reflected in the capital contributions granted to Metro by the Chilean government to finance Metro's investment plan. During the 2009-2013 period, the Chilean government - through Metro's two shareholders - completed capital contributions of approximately USD1.5 billion. In addition, the State of Chile guaranteed 51% of the company's total debt.
STRATEGIC TRANSPORTATION PROVIDER WITHIN SANTIAGO AREA:
The company's strategic importance in terms of the public transportation system in Santiago metropolitan area (Transantiago) ensure continued financial support from the Chilean government. Metro is the main public transportation system in Santiago and the backbone of Transantiago, participating in approximately 61% of total trips of the system (in September 2013), and facilitating the integration of other public transportation. Its goal is to provide the population an adequate service of transport, maintaining high levels of efficiency. With the upcoming construction of lines 3 and 6 in the next five years (2011-2018), Metro seeks to expand its operation, reaching a network of 136 stations, 26 communes, with an expected influx of approximately 800 million trips.
FINANCING STRATEGY FOCUSED IN UNSECURED DEBT:
Metro's ratings reflect the coexistence of debts with and without the explicit guarantee from the government, which have different degrees of subordination. Since 2008, the company's financial strategy has been to focus on issuing debt without explicit guarantee from the government, representing 49% of Metro's consolidated debt as of Sep. 30, 2013. Fitch estimates that after Metro completes the USD1.3 billion debt financing of its expansion plan, the participation of non-guaranteed debt would increase to 65% to 70% of Metro's consolidated debt.
STABLE OPERATIONAL RESULTS:
The company has maintained stable operational performance during the last five years. Metro's EBITDA margin remained in the 32% to 36% range during the 2010 to September 2013 period. The company's revenue, EBITDA and EBITDA margin were USD484 million, USD154 million and 31.8%, respectively, during the last 12-month period ended in September 2013. The ratings incorporate the expectations that Metro's EBITDA margin would remain in the 32% to 35% range during the 2013-2014 period. Historically, the results of Metro have increased due to the expansion of its network. In December 2012 the company has 103.5 km of lines, 108 stations, and a flow of 649 million annual passengers (640 million in 2011), almost doubling its size in relation to 2006.
BALANCE BETWEEN CAPEX PLAN AND FUNDING STRATEGY:
The company is implementing a USD3.3 billion capital expenditure plan (capex) during the 2012 -2018 period. Approximately USD2.8 billion will be oriented to the company's expansion project to increase its service offering and network extension (construction of lines 3 and 6), while around USD 550 million are planned to be oriented to improve the current facilities during the period. Funding for these projects will be carried out in a similar way to those observed previously. Input from state resources will account for two-thirds of the total with debt investment by Metro making up the remaining third (USD 1.3 billion, including USD 500 million of this proposed bond). Metro's financial leverage is high. The company's net leverage measured as the Net debt to EBITDA ratio was 13x at the end of September 2013. By the end of September 2013, the company's total debt was USD2.4 billion. The main components of the company's total debt were bank loans (29%), public debt (70%), and others (1%). The ratings incorporate the view that Metro's net leverage would remain in the 13x to 15x range during the 2014-2015 period.
Metro's credit ratings reflect the company's adequate liquidity position. The company's had USD394 million of cash and marketable securities as of Sept. 30, 2013, which compares favorably with USD216 million of short-term debt. The company's good access to credit through the banking sector and capital markets provides additional sources of liquidity. Metro's interest coverage ratio was 1.6x and 1.5x during 2012 and LTM September 2013, respectively. The company's coverage ratio is expected to remain around 1.5 during the 2014-2015 period.
Metro's ratings could change if there are relevant changes in the financial and/or strategic support granted by the State of Chile, in its role as a controller of Metro. A downgrade of Chile's sovereign rating could affect Metro's rating.
Fitch currently rates Metro's national scale ratings as follows:
Issuances without explicit Guarantee of State of Chile:
--Line of Bonds # 515 (series H and I) due in 2020 and 2029, respectively 'AA+(cl)';
--Line of Bonds # 619 (series J) due in 2034 'AA+(cl)';
--Line of Bonds # 681(series K and series L) due in 2032 and 2033, respectively 'AA+(cl)'.
Issuances with explicit Guarantee of State of Chile:
--Bond # 257 (series A) due in 2026 'AAA(cl)';
--Bond # 275 (series B) due in 2026 'AAA(cl)';
--Bond # 297 (series C) due in 2027 'AAA(cl)';
--Bond # 339 (series D) due in 2028 'AAA(cl)';
--Bond # 370 (series E) due in 2029 'AAA(cl)';
--Bond # 371 (series F) due in 2029 'AAA(cl)';
--Bond # 431 (series G) due in 2030 'AAA(cl)'.
Additional information is available at 'www.fitchratings.com';
Applicable Criteria and Related Research:
--Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage, August 2013.
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage