OREANDA-NEWS. Fitch Ratings has affirmed Aeroports de Paris SA's (ADP) Long-Term Issuer Default Rating (IDR) and senior unsecured rating at 'A+' and Short-Term IDR at 'F1'. The Outlook is Stable.

The affirmation reflects ADP's strong operating performance as, in 2015, EBITDA grew 6.8% to EUR1,184m, outperforming Fitch's base case (FBC) by 4.7%. This was a result of both higher passenger traffic (PAX), rising by 2.9% to 95.4 million (1% above FBC), and cost savings, leading EBITDA margin to increase to 40.6% from 39.7%.

The 'A+' rating is underpinned by ADP's resilience to economic downturns with a fairly low peak-to-trough PAX of 5.9%, solid competitive position, well-diversified revenues, a stable regulatory framework (providing visibility on the capex programme) as well as the attractiveness of ADP's wealthy catchment area. Fitch expects ADP's leverage to increase but for it to remain consistent with the ratings and peers.

KEY RATING DRIVERS

Revenue - Volume Risk: Stronger

ADP is the second-largest airport group in Europe with a strong origin and destination (O&D) traffic currently at 76% of PAX and demonstrated resilience to economic downturns. In 2009, revenue and EBITDA grew 4% despite a 4.7% drop in volumes. In 2015, PAX at the Parisian airports increased 2.9% and in 1Q16 1.9% despite the recent terrorist attacks.

ADP benefits from a large and affluent catchment area in the Parisian region. It also benefits from dual characteristics typically associated with both hub and O&D airports, particularly Charles-de-Gaulle (CDG), which accounts for most of ADP's operating profit. The largest carrier, Air France-KLM, represents 48% of PAX.

Revenue - Price Risk: Midrange

ADP's aviation tariffs are subject to a typical five-year price cap regime (albeit with increased commercial risk as a result of the application of dual/adjusted till) overseen by the French state (AA/Stable), with the current price controls set for 2016-2020. The overall strength of the Economic Regulation Agreement (ERA) regime (regulated, five-year, CPI-based price tariffs, fair return on capital, security costs fully recoverable and re-balancing mechanism for sustained changes in traffic) remains a rating positive, and Fitch views the regulatory framework as broadly supportive.

The new ERA, which regulates the operations for 2016-2020, focuses on increasing efficiency and attractiveness of the Parisian airports. The tariff increases are limited on average to CPI+1% with return on capital stabilising at 5.4% in 2020. The moderate price increases are lower than the previous average price cap of CPI+1.38% and, given the agreement's higher regulatory capex requirement, mean ADP is expected by the regulator to rely on operational costs savings to mitigate its impact.

ADP aims to incentivise long haul traffic and airlines performance. Overall, some of the parameters of the new regulatory agreement may be challenging but Fitch believes that on balance it does not change the company's business risk profile.

Infrastructure Development/Renewal: Stronger

ADP's main hub, CDG, has sufficient capacity to handle traffic growth and has modern facilities. ADP intends to spend EUR3bn of regulatory capex on new buildings and various other infrastructure improvements in 2016-2020. Such heavy investment carries execution risk and could result in cost overruns. However, this is mitigated by ADP's track record in delivering capex projects.

Debt Structure: Midrange

ADP's debt is corporate unsecured with bullet maturity. However, this is mitigated by a well spread maturity profile. In addition, ADP is a well-recognised name in the European capital markets, and has successfully accessed debt markets during times of market disruption. Eighty-five per cent of the debt is fixed-rate or hedged. At end-2015, liquidity was strong with cash in - hand of EUR1.7bn.

Debt Service

We expect ADP's net debt-to-EBITDA to increase more than previously projected, due to higher non-regulated capex in the 2016-2020 regulatory period, but it should remain consistent with the ratings and peers. The ratio will average over the next five years at 3.4x under Fitch's base case and 4.0x under Fitch's more conservative rating case (from 2.3x at end-2015). The increased projected capex follows clarity on the company's plan for non-regulated capex (e. g. retail, real estate) and security capex, all together increasing our projections by a cumulative EUR1bn to EUR5bn.

The net leverage buffer versus Fitch's rating downgrade trigger (4.0x) has reduced but no Negative Outlook is warranted in light of ADP's solid performance outlook and the flexibility the company has with regard to both non-regulatory capex and its potential international acquisition strategy as considered under Fitch's rating case. Any future significant debt-funded M&A activity could, however, increase leverage and lead to greater volatility in financial performance.

Peers

ADP compares well with its closest European peer, Heathrow airport (senior debt rated A-/Stable) as both airports benefit from large catchment areas as well as strong resilience to economic downturns due to fairly inelastic demand. Heathrow's net leverage profile is much higher (just below 7x over the next five years), reflecting a more aggressive use of debt funding via a restrictive and covenanted financing structure.

ADP's ratings are consistent with similarly rated US airports that on the whole have more conservative financial structures, coupled with higher leverage but less uncertainty surrounding potential M&A activity.

RATING SENSITIVITIES

Sustained net debt-to-EBITDA above 4.0x due to, for example, heavily debt-financed acquisitions or a main carrier significantly cutting capacity could result in negative rating action. Adverse terms for the regulatory regime or a sustained exogenous shock could also place pressure on the ratings.

Net debt-to-EBITDA consistently below 2.0x could lead to positive rating action.

SUMMARY OF CREDIT

ADP is the second-largest European airport group by number of annual passengers. It operates Paris's two main airports (CDG and Orly) and has minority stakes in TAV Airports and TAV Construction.

The French state continues to hold an effective majority of ADP. Under French law, the state must retain at least 50.1% of ADP's shares. ADP's ratings currently do not include any uplift for potential state support.