CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed at 'BB-' the Long-term Foreign Currency (FC) and Local Currency (LC) Issuer Default Ratings (IDR) of Andino Investment Holding S.A.A. (AIH). Fitch has also affirmed AIH's senior unsecured notes at 'BB-'. The Rating Outlook has been revised to Negative from Stable.
The Negative Outlook reflects AIH's weaker than expected results due to a deterioration in the company's business position for imported products at the Callao port and sluggish economic activity. These factors have resulted in AIH having leverage that is higher than previously projected by Fitch. AIH gross adjusted leverage ratio was 5.5x, as of June 30, 2014, which was above Fitch's projection of leverage in the range of 4.5x during 2014.
KEY RATING DRIVERS
Good Market Position:
AIH has leading positions in the logistic and maritime industries through its subsidiaries Neptunia and Cosmos, which combined represent 79% of the company's consolidated LTM ended June 30, 2014 EBITDA. AIH maintains a well-diversified customer base with long-term business relationships and storage facilities strategically located next to the Lima-Callao port and airports. During the past year, Neptunia faced increasing competition on temporary storage of import containers, while Cosmos' performance improved due to a positive trend for fleet and off shore barges operations for oil companies.
AIH's consolidated revenues were USD226 million during the LTM ended June 30, 2014, which was similar to 2013, while its EBITDA slipped to USD27 million from USD25 million and its margin contracted to 10.9% from 11.8%. The company's stagnant performance compared unfavorably with the past four years when revenues were growing by around 15% per year. Economic activity in Peru fell short of expectations and import activity stagnated. Negatively, AIH's business position weakened in key ports such as Callao during 2014. During the first half of 2014, the overall import activity at that port fell by 2%, while AIH's import containers at the Callao port fell by 20%.
High Leverage and Negative FCF:
The company's gross adjusted debt/EBITDA ratio and its net debt/EBITDA ratio were 5.5x and 4.9x, respectively, for the LTM ended June 30, 2014. AIH's total debt was USD136 million at the end of June due to its issuance of USD115 million of notes during November 2013. Fitch expects deleveraging to occur from cash flow growth rather than debt reductions. Fitch's revised Base Case projections result in a gross adjusted leverage ratio of around 5.0x in 2014 and 4.5x from 2015 forward. Free cash flow is projected to be neutral to mildly negative in 2014 and 2015 due to estimated USD10 million per year of capital expenditures.
As of June 30, 2014, AIH had USD15.3 million of cash, which was roughly equivalent to its short-term debt obligations of USD15.8 million. The company's interest coverage ratio, measured as EBITDA/interest expenses, was extremely tight at 1.3x for the LTM ended in June 2014. After the bond issuance in 2013, about 80% of the company's debt matures during 2020. Positively, AIH maintains about USD292 million of unencumbered assets, which could be borrowed against in case liquidity is under pressure.
Joint-Venture's Infrastructure Projects Delivered as Expected:
AIH's 50% owned joint ventures, Aeropuertos Andinos del Peru (AAP), which operates five airports in Peru's southern region, and Terminales Portuarios Euroandinos (TPE), which operates the port of Paita, have recently completed investments projects. The debt of these projects is non-recourse to AIH and/or has been co-funded by the Peruvian government. In the near term, no dividends are projected to be received from them. Positively, AIH has the potential to improve its service operations through synergies with them. On July 2014, Sociedad Aeroportuaria Kuntur Wasi, another 50%/50% joint venture owned by the company was granted a 40 year-concession to build and operate an international airport at Cuzco (Chichero) for USD470 million under a seven-year construction term. This project will also be funded with non-recourse debt.
Factors that could result in a negative rating action include gross adjusted leverage above 4.5x. Increased competition that would lead to a continued decline of the company's business positions at key ports would also be viewed negatively, as would delays and/or higher capital needs for infrastructure projects sponsored by AIH.
An Outlook revision to Stable includes reduction in leverage levels toward 4.5x (gross adjusted leverage) in the next 12-18 months along with improvement on operational results and adequate liquidity. More geographic diversification and successful development and/or consolidation in infrastructure projects that would improve the stability and amount of cash flow generated could lead to a ratings upgrade.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (May 28, 2014).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage