Fitch Ratings has assigned an expected National Rating of ‘AA(bra)(exp)’ with a Stable Outlook to the second simple debenture issuance proposed by Triangulo do Sol Auto-Estradas S.A. (Triangulo do Sol), in the amount of BRL620 million to be due in 2020.
Key Rating Drivers
–Proven and resilient traffic volume: Since the beginning of its concession opening in 1998, Triangulo do Sol has delivered a solid performance, posting a traffic CAGR 2000-11 of 4.4% (vehicle equivalents). Triangulo do Sol operates three highways with strong commercial vocation in the countryside of the State of Sao Paulo and has benefited from a consistent growth in the agriculture and industrial segments in the region. The traffic volume has proven to be resilient, even in periods of stress and economic slowdown.
–Adequate rate setting framework: The concession agreement with the government of Sao Paulo establishes toll fees fully linked to inflation. Moreover, since the operations start up, the regulator also granted some real tariff increases in recognition for the conclusion of expansion works. Starting from 2013, the current index, the General Price Index (IGP-M), will be replaced by the Consumer Price Index (IPCA), but revenues will remain fully linked to inflation. Historically, traffic volume has showed low elasticity to tariff increases.
–Well managed infrastructure: Entering its 15th year of concession, Triangulo do Sol has already concluded most of the mandatory expansion and infrastructure adequacy works. Thus, future works should mainly refer to general maintenance. The maintenance plan is clearly detailed in the concession investment program and there is only one more heavy maintenance cycle ahead, including resurfacing. Triangulo do Sol’s highways have ranked among the best in the country for several times since the beginning of the concession due to its high quality infrastructure.
–Weak debt structure: Rated debentures establish no reserves, cash waterfall or well-defined ring-fencing mechanisms. All receivables pass through a centralizing account, but any retention or preferred payment to debt holders is only triggered in case of early redemption. There is also no dividend distribution test. Financial covenants are considered somewhat loose and allow for significant leverage increases before being breached.
–Additional indebtedness could press rating: The debentures allow for additional unsecured leverage that does not exceed the financial covenants. The indenture also allows for additional loans to sponsor of up to BRL250 million; therefore, the project could be releveraged in order to transfer additional funds to the shareholder. Fitch believes that this provision is more likely to be used as a cash-reliever mechanism in case performance is materially above expectations. Otherwise, additional indebtedness at the project level would likely lead to a deterioration of Triangulo do Sol’s creditworthiness.
–Adequate Coverage: Under Fitch base case scenario, average and minimum DSCR were 2.08x and 1.27x, respectively, while LLCR was 1.65x. Under the agency’s rating case scenario, the minimum DSCR is 1.06x and the average, 1.80x, with LLCR of 1.44x. According to Fitch’s sensitivity analysis, the project could repay debt even in a scenario of slight GDP contraction. This analysis considered the agency’s base case assumptions, although with an annual GDP performance of -0.5% between 2013 and 2020.
What Could Trigger a Rating Action
The expected rating on Triangulo do Sol’s proposed issuance could be affected in case of:
–Debt profile substantially different from expectations;
–Additional leverage for funds transfer to the controlling shareholder;
–Consistent and significant deviations from the expected operational performance.
The debentures will be issued as unsecured. The real guarantees mentioned below will be assigned to the debentures after the implementation of the following suspensive clauses: i) full amortization of the 1st debentures issuance (bridge loan), which should take place simultaneously with the settlement of the 2nd debentures issuance; and ii) publication of Artesp’s (regulatory agency) approval to the issuance and constitution of guarantees. On Nov. 27, 2012, Artesp published this approval. The indenture will be amended after conclusion of the first suspensive clause, when the debentures will have their status changed to secured by real guarantees.
–Pledge of 100% of issuer shares, as well as any payment rights related to shares pledged.
–Fiduciary assignment of all rights related to the concession, including receivables, facilities and assets.
The debentures will be issued by Triangulo do Sol. The concessionaire was created in 1998 for the purpose of renewing, operating and maintaining three highways in the countryside of the state of Sao Paulo: Washington Luis (SP-310), Brigadeiro Faria Lima (SP-326), Carlos Tonanni, Nemesio Cadetti, Laurentino Mascari and Dr Mario Gentil (SP-333). The issuer expects to issue BRL620 million, divided into up to two series, which are expected to be due in April 2020.
The rated debentures will be entirely used to repay a bridge loan of the same amount taken in June 2012. The bridge loan was used to pay other outstanding debts related to investments in the concession, and to subscribe BRL500 million in debentures issued by its controlling shareholder, Atlantia Bertin Concessoes SA. These debentures will be due on Dec. 29, 2013 but could be renegotiated. The debentures have bullet payment for principal and interest. The BRL500 million transferred to the controlling shareholder were mostly used in the beltway concession system in the state of Sao Paulo, which will be operated by one of its shareholders. The redemption of these debentures will occur through cash generation of the beltway project and other toll roads of the group.
The concession of Triangulo do Sol was granted in 1998 for a 20-year period but was extended for 37 months after approval by the grantor of economic re-equilibrium requests by the issuer. The concession is valid until July 2021. Due to its vocation to commercial usage on the back of intense activity of agricultural and industrial segments, the traffic in the highways is mostly comprised by heavy vehicles. In 2011, heavy vehicles (vehicle equivalents) represented around 64% of total traffic. Since the beginning of the concession, traffic growth has remained consistent. In 2012, the average daily traffic increase reached 8.1% in the first 11 months, as compared to 0.7% GDP growth in the first three quarters.
Applicable Criteria and Related Research:
–‘Rating Methodology for Infrastructure and Project Financing’ (July 11, 2012);
–‘Rating Criteria for Toll Roads, Bridges, and Tunnels’ (Aug. 2, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Toll Roads, Bridges, and Tunnels