OREANDA-NEWS. S&P Global Ratings said today that it had affirmed its 'B-' corporate credit and issue-level ratings on CLISA-Compania Latinoamericana de Infrastructura & Servicios S. A. (CLISA). The outlook is stable.

The 'B-' ratings on CLISA reflect the company's high exposure to Argentine public-sector counterparties, which often translates into profit volatility and unexpected swings in working capital. In addition, although CLISA has a good market position in the construction business in Argentina, its market share in Latin America is rather modest, with some presence in Peru and Panama. The ratings also incorporate the currency mismatch between CLISA's dollar-denominated debts and its domestic cash flow generation. CLISA's experience in navigating Argentina's changing political landscape, industry track record, and long-standing ties with public-sector counterparties partly mitigate these factors.

On July 20, 2016, CLISA announced the issuance of its $200 million 7-year bullet senior unsecured bond. The use of proceeds includes the tender of its outstanding $87.1 million due in 2019 and short-term debt prepayment. After the liability management, we expect CLISA's nominal debt and credit metrics to remain stable, while its financial flexibility improves, as it will reduce the concentration of its short-term debt, which accounted for 49% of total debt as of March 31, 2016. On the other hand, the transaction might exacerbate CLISA's currency mismatch risk because the company will replace debt denominated in local currency with the new bond, while its cash flow generation will remain predominately in Argentine pesos. We estimate that, after the bond issuance, approximately 75% of the total debt will be denominated in foreign currency.

The new administration plans to invigorate the economy by boosting civil works and that may benefit CLISA in the next 3 years. However, given the uncertainties around the extension and execution details of the infrastructure plan we took a conservative approach in our base case.

The stable outlook on CLISA incorporates our expectations that the company will maintain its debt to EBITDA at levels below 5x.

We could lower the ratings on CLISA in the next 12 months if we perceive that the company's capital structure is unsustainable, which could happen if its debt to EBITDA persistently exceeds 5x, for example. At the same time, a downward revision of the country's T&C assessment would result in a downgrade of the company.

In the next 12 months, any upside scenario would depend on both an upward revision of the ratings on Argentina to 'B' (because CLISA cannot be rated above Argentina due to its high exposure to the country) as well as an improvement in the company's financial risk profile. That might occur if the company starts generating sustained operating cash flows—for example, if its OCF to debt ratio were to exceed 25%.