CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings to Fideicomiso P.A. Costera's notes:
--USD150.8 million USD bonds 'BBB-';
--COP327,000 million UVR bonds 'BBB-'/'AA+(col)';
--COP135,000 million UVR loan 'BBB-'/'AA+(col)';
--COP250,000 million COP loan A 'AA+(col)';
--COP300,000 million COP loan B 'AA+(col)'.
The Rating Outlook is Stable
Final pricing for the USD notes was a coupon of 6.75%.
UVR-denominated debt was priced at UVR+6.25% for the UVR Bond and UVR+7.40% for the UVR Loan. Additionally, COP A and B loans were priced at IPC+7.50% and IPC+9.00%, then stepping down to IPC+7.00% and IPC+6.00%, respectively. Projected coverage is slightly lower than Fitch's case at the time the expected ratings were assigned, with LLCR at 1.32x. Breakeven analysis results are generally in-line with Fitch's analysis at the time the expected rating was assigned
The ratings are based on adequate mitigation of the project's exposure to completion risk, its low exposure to revenue risk, a manageable operational profile, the midrange credit profile of the public sector grantor counterparty Agencia Nacional de Infraestructura (ANI) and the existence of a strong debt structure. The project's LLCR of 1.32x under the rating case, which incorporates the transaction's available liquidity sources, is somewhat weak for the rating category according to applicable criteria, yet it is deemed adequate when considering project's minimum exposure to volume risk.
KEY RATING DRIVERS
Completion Risk: Midrange
COMPLETION RISK ADEQUATELY MITIGATED: Construction works will be performed under a fixed-price date-certain engineering, procurement, and construction (EPC) contract performed through a joint venture composed of a consortium of all the project sponsors (acting directly and not through affiliates) and Rizzani de Echer, who is responsible for the design and construction of the viaduct. All obligations will be assumed on a joint and several basis. Constructora MECO is the only Fitch rated sponsor ('AA-(pan)'/Outlook Stable).
The project consists of construction of short road stretches and improvement of existing roads, several bridges and two interchanges. It involves a certain degree of complexity, such as the construction of the 5.4km viaduct over a mangrove swamp (the Cienaga de la Virgen). According to the independent engineer, the EPC contractor has the experience and the ability to successfully develop the project. The completion schedule is adequate, and the performance bond and subordinated, multipurpose loan facility (SMF) provide enough liquidity to cover debt service should the EPC contractor need to be replaced.
Volume Risk: Midrange
LOW EXPOSURE TO VOLUME RISK: The project's revenues basically consist of ANI's contributions and toll revenues streaming from toll collection and traffic top-up payments. Traffic revenues are not subject to demand or price risk, even if traffic volumes are severely below expectations or expected price increases are not implemented. ANI will periodically compensate the concessionaire if toll collections are below the amounts established in the concession contract. ANI payment obligations under the concession agreement, viewed as midrange, are consistent with the credit quality of the grantor, ANI. The latter is viewed as a credit-linked entity to the Government of Colombia (Local-Currency Issuer Default Rating 'BBB+'/Outlook Stable).
Sources of revenue are subject to infrastructure availability, service levels and quality standards, based on fulfilment of indicators provided in the concession agreement. There are clearly defined, unambiguous, back-to-back penalty deduction mechanisms in the concession agreement with robust cure periods. Deductions are legally capped at 10%. Additionally, fines imposed on the concessionaire, as well as penalty clauses in case of an early termination of the agreement, are limited by the contract.
Price Risk: Midrange
INFLATION ADJUSTED TOLLS: Tariffs are annually adjusted by inflation rate at the beginning of the year. Toll rates are moderate and should the net present value of toll collections received by the eighth, 13th, 18th, and last year of the concession be below guaranteed values, ANI has the obligation to cover any shortfalls, after deductions.
Infrastructure Development/Renewal: Midrange
WELL-ESTABLISHED PLAN: The project depends on a moderately developed capital and maintenance plan to be implemented directly by the concessionaire and largely funded from project cash flows. The concession agreement does not contemplate hand-back requirements. The concessionaire, however, is to operate and maintain the roads according the pre- stablished standards at all times. The structure includes a dynamic 12-months forward-looking O&M reserve to account for routine and periodic maintenance expenditures.
The independent engineer believes the concessionaire has the experience and the ability to successfully operate the project. The O&M plan, organizational structure, as well as the budget, appear reasonable and in line with similar projects in Colombia. Additionally, the concessionaire has a liquid support instrument equivalent to the maximum amount of O&M expenses forecasted for six months. This instrument, at all times, must be issued by a financial entity with a minimum credit rating of 'BBB-' or 'AA+(col)'.
Debt Structure: Stronger
ROBUST DEBT STRUCTURE: Fully amortizing, senior secured debt, comprising of USD, UVR and COP-denominated financings. USD-denominated debt is matched with USD-linked currency revenues settled in COP (approximate 32% of the future budget allocations [Vigencias Futuras] are USD-linked), has been issued at a fixed rate. Furthermore, the transaction contemplates a short-term hedging mechanism that all time must be provided by eligible counterparties to fully cover FX risk exposure. UVR and COP-denominated debt (representing 67% of total debt) is indexed to inflation and is not exposed to basis risk.
Structural features include multiple reserve accounts and a cash sweep mechanism. Robust liquidity mechanisms are in place to mitigate liquidity/budgetary risk, construction delays, and reduced cash flow generation due to low traffic performance. The transaction has a fully committed revolving subordinated loan facility SMF, equal to 15% of outstanding senior debt, in which eligible lenders have committed to disburse funds to the project company when necessary. Additional liquidity includes 12-month principal and interest prefunded onshore and offshore debt service reserve accounts (DSRA).
ADEQUATE LOAN LIFE COVER RATIO (LLCR): The most relevant debt metric for the project is the LLCR, as it incorporates the transaction's available liquidity sources and eliminates the seasonality effect that DSCRs incorporate, due to the traffic top up payments. Fitch's base and rating case LLCRs are 1.38x and 1.32x, respectively. These ratios are somewhat weak for the rating category according to applicable criteria, yet they are deemed adequate when considering the project's minimum exposure to volume risk.
Under Fitch's base case assumptions, calculated break evens for the project's main risk exposures are strong and allow for severe reductions in toll revenues (approximately -71.6%), increases in O&M costs (approximately +58.3%) and Capex (approximately +27.0%), construction delays (approximately 13 months) and a negative inflation rate of 3.6% over the life of the rated debt. The transaction supports delays in traffic top-up payments of 18 months and deduction levels of 10%.
Peer Group: Concesion Costera (Costera) is comparable with Conexion Pacifico 3 (Pacifico), also rated 'BBB-'/'AA+(col)' and Kentucky Public Transportation and Elizabeth River Crossings, both rated 'BBB-'.
Pacifico is its closest peer, as both concessions are part of the 4G toll road program and share volume, price, infrastructure and development/renewal and debt structure risk attributes. Comparatively, while Costera's construction works are of lower complexity, it has a lower LLCR at 1.32x compared to Pacifico's 1.44x and higher leverage at 9.47x. Its revenues are more concentrated in two UFs (UF2 and UF6), making the project more sensitive to construction delays in the aforementioned UFs. Additionally, although coverage metrics for Kentucky Public Transportation and Elizabeth River Crossings are higher than Costera's and Pacifico's, leverage for these two are substantially lower.
Positive Rating Action: Unlikely in the near- to mid-term given the project's early completion stage.
Negative Rating Action: Unexpected completion difficulties leading to delays and cost overruns beyond those already contemplated in Fitch's scenarios, which could materially impact the project's liquidity position.
Negative Rating Action: Deterioration of Fitch's assessment of the credit quality of ANI and/or any change on Fitch's view regarding the credit quality of ANI's contributions.
SUMMARY OF CREDIT
The proceeds of the USD bonds, UVR bonds, UVR loan and COP loans A and B have been used by the Project Company to pay for all financing-related expenses, pre-fund for all the required accounts including the DSRA and OMRA and finance a portion of the total project cost. Project resources are administered through a separated trust to which all assets and liabilities of the project have been transferred, isolating project cash flows from other parties' risks.
In September 2014, ANI, a national government agency ascribed to the Ministry of Transportation of the Government of Colombia (GOC), granted a 25-year concession for the construction, rehabilitation, improvement, operation and/or maintenance of the roads and the associated infrastructure of Anillo Vial de Crespo and la Boquilla, Cartagena - Barranquilla, Puerto Colombia - Barranquilla, Malambo - Galapa and Galapa - Via al Mar - Las Flores. The concession was awarded to Concesion Costera Cartagena Barraqnuilla (Costera), a project company owned by Constructora MECO (35%), MHC (35%) and Constructora Colpatria (30%).
The project aims to improve the connection between Cartagena and Barranquilla, the two most important ports located at the north coast of Colombia. Once operating, speed is expected to reach an average of 80km/h and travel time to be reduced by 33% when compared with Ruta Caribe, the available alternate road.
The Concessionaire will only be entitled to receive revenues upon completion of UFs and the acceptance by ANI. The revenue streams for the project are underpinned by payments from the grantor and are related to the availability and compliance with service/quality levels of the infrastructure.
The construction phase should be accomplished in a maximum period of three years. It includes construction of 47.9km of new roads, improvement of 12 km of roads, rehabilitation of 88.5km of existing roads and 11.8km of O&M only. The most complex sections of the project are UF1, which plans to improve the existing road in a densely populated urban area of Cartagena and UF2, which represents 49% of the value of the EPC cost and involves construction of the 5.4km Grand Manglar Viaduct (bridge) over the environmentally sensitive mangrove swamp area of Cienaga de la Virgen.
The project is divided into six Functional Units (unidades funcionales, UFs). UFs are defined as construction milestones of road segments functionally independent. The concessionaire may start construction of UFs in different points in time. When completed, UFs must meet expected quality standards and service levels in order to start operations.
Below are Fitch's base case (BC) and rating case (RC) assumptions used in the analysis to calculate the different credit metrics:
GDP Base Case (BC): 2016: 2.6%; 2017 - 2020: 3.2%; 2021 - 2025: 3%; 2026 - 2030: 2.5%; 2031- onwards: 1.5%
GDP Rating Case (RC): 2016: 2.6%; 2017: 3.2%; 2018 - 2020: 3%; 2020 - 2025: 2.5%; 2026- onwards: 1%
Inflation Rate: 2016: 5.8%; 2017: 4.3%; 2018-onwards: 3% / year (BC & RC)
TPD: Linked to GDP used in Base Case (BC) and Rating Case (RC), respectively
Toll Rate: 100% (same as used in issuer's management case)
Opex: +5% (BC); +7% (RC)
Capex: +3% (BC); +5% (RC)
Construction delay (months): Two months for all UFs (BC) and four months for all UFs (RC)
FBAs Payment delay (months): Three months after the end of previous year (max delay before termination event) (BC & RC)
Traffic Compensation delay (% affected): 20% (BC & RC)
Traffic Compensation delay (months): 18 months (max delay before termination event) (BC & RC)
Performance Ratio: 97% (BC) 95% (RC)
Reinvestment Proceeds: Inflation Rate +0%
LLCR: 1.38x (BC); 1.32x (RC)
Debt / CFADS: 9.04x (BC); 9.47x (RC)
The secured parties benefit from a first-priority security interest in, control over, and lien on all of the issuer rights in the indenture trustee accounts and the funds, financial assets and other properties deposited and to be deposited in such accounts.
Senior lenders share common collateral on a pari passu basis in relation to all current and future debt of the project company. All proceeds from the collateral will be paid to the intercreditor agent, who, in turn, will distribute the monies to the secured parties. None of the parties has the right to take independent enforcement in respect to the common collateral.
Sources of information
This action was informed by sources of information identified in Fitch's Master Criteria and provided by Goldman Sachs
Additional information is available at www.fitchratings.com
Rating Criteria for Infrastructure and Project Finance (pub. 08 Jul 2016)
Rating Criteria for Toll Roads, Bridges and Tunnels (pub. 29 Sep 2015)
Dodd-Frank Rating Information Disclosure Form