NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded Autopistas del Nordeste (Cayman) Ltd's (AdN) $162 million senior secured notes to 'B+' from 'B'. The Rating Outlook remains Stable.
The rating action is supported by Fitch's recent upgrade of the Dominican Republic's sovereign rating to 'B+' from 'B'. The upgrade was based on a number of positive developments including demonstrated resilience through adverse domestic and external conditions, improving current account dynamics and continued fiscal consolidation under the Danilo Medina administration. AdN's ratings are primarily based on the minimum revenue guarantee (MRG) from the government of the Dominican Republic, and a partial credit guarantee from the Multilateral Investment Guarantee Agency (MIGA) because current and expected future toll revenues fall below levels required to service debt and cover project costs.
KEY RATING DRIVERS
Adequate Governmental Support: The government of the Dominican Republic pledged an MRG that protects noteholders from the risk of insufficient traffic over the life of the notes. The government has continued to honor this pledge and Fitch expects required payments to be made over the life of the notes, albeit with delays.
Financial Guarantee: The notes benefit from a partial political risk guarantee provided by the MIGA, a member of the World Bank Group. A failure by the government to honor the MRG would be covered under this guarantee; however, disbursements can be delayed and internal liquidity is essential to the project's capacity to service debt. Fitch believes the MIGA guarantee provides additional incentives for the government to honor its obligations under the transaction.
Debt Structure: Stronger
The notes are fully amortizing, fixed-rate obligations with an adequate covenant package. Liquidity available within the structure includes a six-month debt service reserve account and a 12-month major maintenance reserve account. These reserves in combination with the SBLC provided by the government, account for liquidity to cover approximately 15 months of debt service.
Revenue Risk - Volume: Weaker
The toll road connects Santo Domingo and the northern province of Samana. The road provides an efficient route, but has competing free alternatives. Moreover, actual traffic remains far below initial projections requiring substantial payments via the MRG.
Revenue Risk - Price: Midrange
Under the concession agreement, the operator of the road is able to increase tolls up to inflation and has historically completed annual rate adjustments to account for inflation.
Infrastructure Development & Renewal: Midrange
A fixed operation-and-maintenance agreement with an experienced operator partially mitigates substantial cost escalations. Additionally, the project benefits from oversight from an independent engineer who provides quarterly reports to investors on the overall condition of the toll road and current and future maintenance needs.
Adequate Debt Service: Fitch's projected debt service coverage ratio (DSCR) including proceeds from the MRG is 1.51x on average with a minimum of 1.35x. Leverage considering the net debt-to-CFADS is approximately 7x, which Fitch believes is acceptable at the current rating level.
A negative rating action on the notes could result from a negative rating action on the sovereign rating or significant delays in the payment of the MRG and/or failure to place the SBLC, resulting in pressure on project liquidity.
A positive rating action could result from a positive rating action on the sovereign.
The notes are secured by all revenues received by the company, the rights of the concession, contracts, MRG and all issued and outstanding shares of the company pledged to the Trustee.
The transaction benefits from a partial credit guarantee from MIGA which supports debt service payments should the government not comply with their obligations. The guarantee pays 51% of debt service not honored up to a maximum of 51% of the total principal balance. The guarantee is not payable on a timely basis though and the transaction depends on the liquidity available internally to meet debt service obligations prior to receipt of MIGA funds.
The toll road, completed in 2009, extends along 106 kilometers (approximately 66 miles), connects Santo Domingo with the northern province of Samana, and includes three toll plazas. In comparison to alternative roads in the region, AdN considerably reduces the travel distance between Santo Domingo and Samana.
Autopistas del Nordeste (Cayman) Limited is the issuer, created under the laws of the Cayman Islands, and is an exempted limited liability company owned by a consortium composed of: Organizacion de Ingenieria Internacional SA, Odinsa Holding Inc., CI Grodco S en CA Ingenieros Civiles, Grodco Panama, Consorcio Remix, Caribbean Basin Construction Corporation Ltd.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' July 12, 2012;
--'Rating Criteria for Toll Roads, Bridges and Tunnels' Aug. 20, 2014.
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Toll Roads, Bridges and Tunnels