Fitch Affirms Atlantia & Autostrade per l'Italia at 'A-'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has affirmed Italian infrastructure holding group, Atlantia Spa's (Atlantia), and its fully owned toll road concession subsidiary, Autostrade per l'Italia Spa's (ASPI) senior unsecured ratings at 'A-'. The agency has also affirmed ASPI's Long-Term Issuer Default Rating (IDR) at 'A-' and Short-Term IDR at 'F2'. The Outlook is Stable.
The ratings are equalised as ASPI (the Opco) unconditionally and irrevocably guarantees Atlantia's (Holdco) debt.
The affirmation reflects solid traffic performance of the Italian group network, its stable financial performance and its moderate current and projected leverage in the context of the long maturity of its main concession (2038). The lack of structural enhancements in the group's debt structure is compensated by well-established access to capital market, a diversified range of bullet maturities and a solid liquidity position, which mitigates refinancing risk.
In its analysis of Atlantia/ASPI Fitch focuses on the Italian toll road business as the rated debt is fully serviced from the cash flow of this business (mainly ASPI and other Italian toll road subsidiaries). Under our approach, the businesses funded with non-recourse debt contribute to the recourse perimeter through dividends they distribute to Atlantia/ASPI.
KEY RATING DRIVERS
Volume Risk - Midrange
Atlantia is a major infrastructure group and the largest Italian toll road operator, managing a network of around 3,000km in Italy (around 70% of group EBITDA) which is critical for the mobility of the whole country. Traffic has been resilient through the 2008-2011 crisis (maximum 1% decline), but experienced a shock in 2012 (-6.8% like-for-like), due to a collapse of domestic consumption in response to austerity measures. Traffic moderately contracted also in 2013 (-1.4%) but returned to growth in 2014 (1%), 2015 (3%) and 1Q16 (4.2% like-for-like) sustained by the country's stabilising economic performance.
Under Fitch revised rating case for 2016, which includes some conservative assumptions versus management's estimates, traffic will grow at around 1% per year in 2016-2019 and at a marginally slower pace thereafter. The effect of the group's increased exposure to more growth-oriented assets in Latin America and airport sector is still modest, as Fitch only takes into account the dividends received from those subsidiaries bearing non-recourse debt. These dividends are currently immaterial compared with the EBITDA of the Italian toll road perimeter.
Price Risk - Midrange
The concession framework is robust as it links inflation-indexed (70%) tariff hikes to capex execution, thus partly de-linking the group's cash flow generation from negative traffic performances. While tariffs have regularly increased over the past years, the risk of political interference remains, especially if Italy's economy weakens.
Infrastructure Development & Renewal - Stronger
The group's capex plan between 2016 and 2029 is large (EUR15bn) but also flexible in size as, in our view, it could be reduced to around EUR12bn, notably because of reduced need for de-bottlenecking works after the last economic downturn. We believe Atlantia is well-equipped to deliver its investment programme as it has extensive experience and expertise in delivering investments on its network.
Debt Structure - Midrange
The non-amortising nature of the debt and lack of material structural protection are weaknesses. However, this is adequately mitigated by limited refinancing risk due to a well-diversified range of bullet maturities, demonstrated access to bond markets, and proactive and prudent debt management.
The group has also well-established relationships with the government-owned financial arm Cassa Depositi e Prestiti (CDP, 'BBB+/Stable) and EIB (AAA/Stable) which provide funding to ASPI at favourable rates. Liquidity is comfortable as cash and committed credit lines cover debt maturities until 2018, in Fitch's rating case. The liquidity analysis is based on corporate rating methodology referenced at the end of this rating action commentary.
Atlantia continues to see solid and stable financial performance. In 2015, Fitch-adjusted leverage (pre-IFRIC 12) stood at 4.3x, which was better than expected by Fitch rating case (4.5x). In the updated Fitch rating case - which uses more conservative assumptions than management, mainly on inflation, opex, interest rates and dividends received - leverage is expected to remain at around 4.5x until 2020 and progressively decreases thereafter to 4x in 2024 when ASPI's investment plan is almost completed.
The main peers for Atlantia are Abertis (BBB+/Stable), Brisa Concessao Rodoviaria (BCR) (BBB/Stable), APRR (BBB+/Stable) and Sias ('BBB+/Stable). Atlantia shares a number of common features with APRR. Both issuers have similar concession maturities and pricing systems as well as similar network sizes. Both networks play a critical role in the mobility of their countries. APRR's traffic was more resilient than Atlantia's during the economic downturn but its rating is one notch lower as it is more highly leveraged and has a less straightforward debt structure.
Atlantia is rated one notch higher than Abertis as it has a much longer concession tenor and more resilient historical traffic performance. Compared with Sias, Atlantia is more leveraged but its higher rating is supported by a much longer concession tenor, a more straightforward group and debt structure and recognition in capital markets.
The ratings could be downgraded if financial performance deteriorates, with leverage (pre-IFRIC 12) consistently exceeding 5.5x.
Conversely, leverage below 4.5x under Fitch's rating case on a sustained basis would be credit- positive but unlikely to trigger an upgrade until the Italian economy and traffic are on a sustained growth path.
Unfavourable decisions made by the Italian government, such as a change in taxation, prolonged freeze in toll rate increase or any other measure materially affecting the group's free cash flow generation, if not compensated, could adversely impact Atlantia's credit profile.
Atlantia has implemented a prudent and selective expansion strategy in recent years. A sustained move towards debt-funded acquisitions outside the Italian toll road business, with material impact on the recourse-debt metrics, could negatively affect the ratings.
SUMMARY OF CREDIT
Atlantia is an Italy-based infrastructure group and one of the largest toll road operators globally. It has progressively expanded to Latin American toll roads (Brazil and Chile) and airports. Its business profile is becoming slightly more complex and diversified from its historical core (recourse Italian) toll roads network.