Brisa Concessao Rodoviaria S.A.

Transcription

1 CREDIT OPINION Brisa Concessao Rodoviaria S.A. Update following change in rating outlook to positive Update Summary Rating Rationale RATINGS Brisa Concessao Rodoviaria S.A. Domicile Portugal Long Term Rating 3 Type Senior Secured - Dom Curr Outlook Positive Brisa Concessao Rodoviaria, S.A. (BCR) s 3 senior secured debt ratings reflect (1) the large size and importance of the company s toll road network for Portugal's transport system; (2) its relatively resilient cash flow despite significant traffic declines in the past thanks to strict cost control and contained investment requirements; (3) the recent strong traffic growth, providing for deleveraging potential in the context of the company s relatively high leverage; (4) the transparency of the concession framework providing for tariff increases linked to inflation; (5) the covenant package and other creditor protections incorporated within BCR's debt documentation; and (6) the policy of prudent financial management. The rating further recognises the company s exposure to country risks associated with being based in Portugal. Exhibit 1 Please see the ratings section at the end of this report for more information. The ratings and outlook shown reflect information as of the publication date. Cash flow generation remains strong thanks to a strong traffic performance, cost control and contained investments EBITDA-capex EBITDA-capex ( m) EBITDA-capex (%) Traffic (%) 500 Contacts Raffaella Altamura VP-Senior Analyst raffaella.altamura@moodys.com % 6.7% % % % Andrew Blease Associate Managing Director andrew.blease@moodys.com % 5.0% 4.3% % % % -5.1% CLIENT SERVICES -14.0% -400 Americas Asia Pacific Japan EMEA Note: This represents Moody's forward view, not the view of the issuer Source: Company, Moody's Investors Service E 2018E

2 Credit Strengths Concessionaire for Portugal's largest tolled motorway network Positive traffic growth drives increase in revenues Supportive and well-established concession framework providing for tariff increases linked to inflation Terms of debt documentation provide a degree of protection to creditors Credit Challenges High financial leverage in the context of the shortening concession life Exposure to risks associated with being based in Portugal Rating Outlook The positive rating outlook is in line with that of the Government of Portugal (Ba1, positive). An upgrade to the government s rating would likely result in an upgrade to BCR s rating, provided that BCR s current financial profile is maintained. Factors that Could Lead to an Upgrade An upgrade of the rating of the Government of Portugal, coupled with a maintenance of BCR s key credit metrics at current levels (i.e. Funds from operations (FFO)/debt in the low-double digits in percentage terms) and adequate headroom against the covenanted level at which dividends to shareholders are prohibited, would likely result in an upgrade of the ratings of BCR. Factors that Could Lead to a Downgrade Downwards rating pressure could develop if (1) there is a material change in the terms and conditions of the concession that negatively affects the company's business or financial risk profile; (2) there is a deterioration in the company's liquidity profile; (3) the company fails to maintain a minimum FFO/debt ratio of 8% and FFO interest cover of 2.5x; or (4) there is an increased risk of covenant breaches. In addition, a deterioration in the Portuguese sovereign creditworthiness could result in a downwards adjustment of BCR's ratings. Key Indicators Exhibit 2 Key Indicators Note: All ratios are based on Adjusted financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations Source: Moody's Financial Metrics This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history. 2

3 Detailed Rating Considerations Concessionaire for largest tolled motorway network in Portugal BCR is responsible for the operation of 1,100 km of motorways, of which 1,014 km are tolled (total network under concession of 1,124 km). The network accounts for around 37% of the domestic motorway network. It covers the country from north to south and from east to west and is the backbone of the Portuguese road transport system, linking the main urban centres and thereby covering the richer and more populated areas of the country. As the rail system is under developed in Portugal, the principal competition to the BCR network comes from other Brisa group concessions and the former shadow toll roads (SCUTs) network. In particular, the A17 owned by Brisal (70% owned by Brisa) and the A8 owned by Atlântico (50% owned by Brisa) together with the Costa de Prata (former SCUT toll road) provide a second motorway corridor linking Lisbon and Oporto, competing with BCR's main A1. Whilst smaller in size than other Moody's rated European toll roads, the importance of BCR's network for the Portugal's infrastructure system underpins the credit profile of the company. Positive traffic growth drives increase in revenues BCR s network carries a large proportion of light vehicle (LV) traffic. The share of heavy vehicle (HV) traffic amounts to around 5% and is the lowest among our rated European toll roads. This primarily reflects the geographic location of Portugal and lack of transnational routes linking different economic regions. Whilst a low proportion of HV traffic would suggest more resilient traffic volumes, BCR's network has a fairly sizeable share of leisure traffic, which tends to be more volatile depending on the macroeconomic conditions. In this regard, the economic crisis severely impacted BCR s traffic. In , BCR s network lost around 27% in traffic volumes, the biggest decline among our rated toll roads. As a comparison, large French motorway networks saw a cumulative increase in their total traffic volumes of 0-4% in the same period. Austerity measures affecting economic activity and consumption coupled with competition from new motorways were the major drivers of falling traffic volumes in Portugal. Declines in traffic volumes were significantly higher than the contraction in Portugal's GDP as a material adjustment in the use of tolled motorways was driven primarily by heavily constrained household budgets. As the economy and consumer confidence improved, so did the traffic volumes. Traffic volumes started to pick up in Q and in 2014 BCR reported the first full year of positive traffic growth since 2007 (+4.5% compared to 2013). Even stronger growth continued in 2015, when BCR reported a 7% increase in traffic across its network compared to 2014, also supported by declining fuel prices (-9% in 2015) and weather conditions. Strong traffic trends continued in 2016, with volumes increasing by 7% (6.9% LV and 9.6% HV), reflecting a more benign macroeconomic environment, the leap year effect (accounting for around 0.3% of total traffic growth) and a continued downward pressure on fuel prices (-4.2% vs. 2015). As of H1 2017, traffic growth remained strong, with BCR reporting an increase of 6.8%, despite the previous year being favourably affected by the leap year effect. Exhibit 3 Improving macroeconomic environment leads to strong traffic recovery on BCR's network % change y-o-y Traffic GDP 10% Private consumption 5.0% 4.5% 5% 2.5% 0% -5% -2.6% -3.9% -10% -14.0% -15% E 2018E Note: This represents Moody's forward view, not the view of the issuer Source: Company, National Institute of Statistics, Moody's Investors Service 3

4 We expect Portuguese GDP growth to be 2.5% in 2017 and 1.7% in 2018 and domestic consumption to continue to grow. This will underpin traffic volumes in the near term. Traffic will be a key driver of BCR s revenues given relatively limited increases in tolls. Exhibit 4 Traffic is recovering but remains approximately 10% below pre-crisis level (2008=100) BCR Source: Company, Moody's Investors Service Limited tariff increases given low inflation rate but the overall concession framework is supportive BCR s tariffs remained flat in and increased by 0.2% in Given continued low inflation toll increases amounted to only 0.8% in The tariff formula stipulated in the concession contract provides for an adjustment of tolls linked to inflation over the entire concession life. There are no periodical reviews and BCR is allowed to increase tariffs by 100% of the inflation rate in the preceding year, with BCR retaining 91.5% of the revenue outcome of such increase and the remainder being paid to the state-owned entity Infraestruturas de Portugal, S.A. (Ba2, positive). The concession agreement provides for a floor in terms of tariff increases. Negative inflation means that tariffs remain unchanged in a given year but there will be a corresponding adjustment in the following years when inflation becomes positive and entirely compensates the past negative inflation. More generally, we consider the Portuguese concession and regulatory framework to be well established and supportive. Amongst other features, the concession agreement entrenches BCR s rights to receive compensation in the event of early termination and includes provision for compensation in the event of material adverse change. The concession contract does not provide for any change in tariffs or other compensation for adverse events including changes in macroeconomic circumstances. However, the financial rebalance mechanism extends to risks such as change of law and hence provides BCR with some protection against external events. There are several precedents of change to the concession agreement, with suitable compensation being granted to the concessionaire in a straightforward and timely fashion. The December 2008 changes of the concession contract, when the concession period was extended by three years, is a good example. Financial leverage remains high but headroom against covenants has improved BCR s leverage is high based on the funds from operations (FFO)/debt metric, although we note that this ratio does not pick up the benefit of the cash held on balance sheet ( 118 million as of end-december 2016). The company s remaining concession life is relatively long compared with other European toll roads, currently around 19 years. This results in fairly strong ratios that take into account the remaining life of the concession i.e. Moody s debt service coverage ratio (DSCR) and concession life coverage ratio (CLCR). BCR s financial profile was challenged by the material traffic declines in the past resulting in limited headroom against the default covenants included in the terms of the debt documentation. As traffic started to recover, the company s cash flows improved. Despite sizeable payment to shareholders in the total amount of 334 million in 2015 and 360 million in 2016 (this followed several years of no distributions), BCR s leverage continued to slightly reduce. The company s net debt/ebitda was down to 5.25x as of end-december 2016 and 5.05x as of June The company exhibits significant headroom against the dividend lock-up level included in BCR s debt documentation (net debt/ebitda of 5.75x). 4

5 Exhibit 5 Headroom against the covenants has increased Net debt/ EBITDA 9x Trigger level Default level 8.00x 8.00x 8.00x 8.00x 7.75x 7.75x 6.50x 6.50x 6.25x 5.75x 5.75x 5.75x 5.38x 5.30x 5.25x 5.05x H x 7x 6x 5x 4x 3x 7.01x 6.44x 2x 1x 0x Source: Company, Moody's Investors Service Whilst we recognise the company s significant headroom against the default covenant level (net debt/ebitda of 7.75x as of H1 2017), we caution that the covenant levels will decrease over time, thus requiring continued deleveraging of the business as the concession life shortens. We expect BCR to continue to follow prudent financial policies and maintain adequate headroom against its dividend lock-up and default covenant levels, which will become more demanding over time. Exposure to Portugal constrains the rating BCR s rating reflects the company s exposure to risks associated with being based in Portugal (Ba1, positive). The link to the Portuguese sovereign manifested itself during the economic crisis in particular in 2012 when traffic was down by 14% and the cost of funding significantly increased (BCR s cost of debt on new issuance exceeded 6%). BCR s ratings are currently constrained by that of the Government of Portugal, in that BCR would not likely be rated more than one notch higher than the government s rating, reflecting its almost exclusively domestic focus. Consequently, an upgrade to the government s rating would likely result in an upgrade to BCR s rating, provided that BCR s current financial profile is maintained. Liquidity Analysis BCR s liquidity is strong, underpinned by cash balance of around 339 million and 275 million of undrawn committed credit lines, as of H The company follows a policy of prudent financial management and manages its liquidity in advance of upcoming debt maturities. BCR issued this year a 300 million bond with a maturity in BCR has fairly contained capital expenditure plans averaging some million per year over the medium term. The company s primary demands on cash flows will be distributions to shareholders and debt repayments. The company s next large debt maturity of 300 million in April 2018 is thus more than covered with the available liquidity and expected cash flow generation. 5

6 Exhibit 6 BCR's debt maturity profile is well spread EIB 400 Bonds and other bank debt pre-funded Note: As of H Source: Company, Moody's Investors Service Structural Considerations The structure of the 3 billion EMTN Programme is, in large part, typical of a highly-leveraged corporate transaction. Lenders and BCR, together with its immediate parent, are parties to a number of agreements including a common terms agreement (the CTA) which sets out a range of positive and negative covenants, which bind BCR. The CTA additionally provides for trigger events such that if, for example, the company breaches key financial ratios then it will not be permitted to pay dividends. Lenders are provided with certain security, including over the shares in BCR held by its immediate parent, and benefit from reserve accounts, including a debt service reserve covering 12 months of scheduled interest and amortising debt payments. The financing structure is sufficient to ring-fence BCR from the credit quality of the rest of the Brisa group. We consider, however, that the structural features are weaker than in other structured financings given the significant reliance on outsourcing contracts, refinancing risk and cash reserve requirements (the debt service reserve does not, for example, provide for principal repayments of non amortising debt). Also, the security may have limited value as any transfer of the shares would be subject to government consent and could be frustrated by the appointment of an administrator. For more detail see Brisa Concessao Rodoviaria S.A. Pre-Sale Report dated 26 October Corporate Profile Brisa Concessao Rodoviaria S.A., the largest subsidiary of Brisa-Auto-Estradas de Portugal S.A. (Brisa), is the operator of Portugal's largest toll road network with 12 motorways under concession covering a total of 1,124 km, of which 1,100 km is under operation. The network is operated under the terms of a concession granted by the Portuguese Republic, which ends in BCR has few staff and very limited resources. It is reliant on other Brisa group companies to provide a range of services including the operation and maintenance of the asset under a number of outsourcing contracts. Rating Methodology and Scorecard Factors BCR's rating reflects our assessment of the company s overall business profile and financial performance, in line with our Global Rating Methodology for Privately Managed Toll Roads, published in May The actual rating is below the grid indicated rating reflecting the constraints associated with the Portuguese sovereign rating (Ba1 positive). 6

7 Exhibit 7 Rating Factors Current FY 31/ 12/ 2016 Privately Managed Toll Roads Industry Grid [1][2] Fact or 1 : Asset Type and Service Area (25%) Measure Moody's Month Forward View As of 6/ 9/ 2017 [3] [4] Score Measure Score a) Asset Type Aa b) Competing Routes A A a) Traffic Profile b) Track Record and Stability of Tolled Traffic Ba c) Traffic Density c) Economic Resilience of Service Area Aa Fact or 2 : Traffic Profile and Performance Trends (15%) Fact or 3 : Concession and Regulat ory Framework (10%) a)ability and Willingness to Increase Tariffs Aa Aa b) Protection Provided by the Concession and Regulatory Framework Fact or 4 : Financial Policy (10%) a) Financial Policy Fact or 5 : Coverage and Leverage (40%) a) Cash Interest Coverage b) FFO / Debt 3.5x 4.0x-4.5x 10.9% 10.5%-11.5% c) 1.8x 1.6x-1.8x Ba d) RCF / CAPEX -4.6x Caa 1.0x-1.5x e) Concession Life Coverage Ratio 2.1x Ba 1.9x-2.1x Ba Rat ing: Indicated Rating from Grid Factors 1-5 Ba1 Rat ing Lift a) Indicated Rating from Grid Ba1 1 b) Actual Rating Assigned 3 [1] All ratios are based on Adjusted financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations [2] As of 12/31/2016; Source: Moody's Financial Service [3] This represents Moody's forward view, not the view of the issuer and unless noted in the text does not incorporate significant acquisition and divestures [4] RCF/capex is based on a long-term average as distributions will vary over time Source: Moody's Investors Service Ratings Exhibit 8 Category BRISA CONCESSAO RODOVIARIA S.A. Outlook Senior Secured -Dom Curr Moody's Rating Positive 3 Source: Moody's Investors Service 7

8 2017 Moody s Corporation, Moody s Investors Service, Inc., Moody s Analytics, Inc. and/or their licensors and affiliates (collectively, MOODY S ). All rights reserved. CREDIT RATINGS ISSUED BY, INC. AND ITS RATINGS AFFILIATES ( MIS ) ARE MOODY S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY S PUBLICATIONS MAY INCLUDE MOODY S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY S OPINIONS INCLUDED IN MOODY S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY S ANALYTICS, INC. CREDIT RATINGS AND MOODY S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. MOODY S CREDIT RATINGS AND MOODY S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY S CREDIT RATINGS OR MOODY S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided AS IS without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody s publications. To the extent permitted by law, MOODY S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY S. To the extent permitted by law, MOODY S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY S IN ANY FORM OR MANNER WHATSOEVER. Moody s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody s Corporation ( MCO ), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody s Investors Service, Inc. for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at under the heading Investor Relations Corporate Governance Director and Shareholder Affiliation Policy. Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY S affiliate, Moody s Investors Service Pty Limited ABN AFSL and/or Moody s Analytics Australia Pty Ltd ABN AFSL (as applicable). This document is intended to be provided only to wholesale clients within the meaning of section 761G of the Corporations Act By continuing to access this document from within Australia, you represent to MOODY S that you are, or are accessing the document as a representative of, a wholesale client and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to retail clients within the meaning of section 761G of the Corporations Act MOODY S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be reckless and inappropriate for retail investors to use MOODY S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or other professional adviser. Additional terms for Japan only: Moody's Japan K.K. ( MJKK ) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody s SF Japan K.K. ( MSFJ ) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ( NRSRO ). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. REPORT NUMBER

9 Contacts 9 CLIENT SERVICES Raffaella Altamura VP-Senior Analyst raffaella.altamura@moodys.com Andrew Blease Associate Managing Director andrew.blease@moodys.com Corrado Trippa Associate Analyst corrado.trippa@moodys.com Xavier Lopez Del Rincon VP-Sr Credit Officer xavier.lopez-del-rincon@moodys.com Americas Asia Pacific Japan EMEA