Fitch Rates Global Port (Finance)'s Proposed Eurobond 'BB(EXP)'; Outlook Negative
The final rating is contingent on the receipt of final documents conforming materially to information already received.
KEY RATING DRIVERS
GPI Finance will issue USD350m fixed-rate notes, which will be unconditionally and irrevocably guaranteed on a joint and several basis by GPI (hold co) and its three major operating subsidiaries (opco) First Container Terminal Incorporated (FCT), Joint-Stock Company "Petrolesport" (PLP) and Vostochnaya Stevedoring Limited Liability Company (VSC), representing 99% of consolidated EBITDA. GPI intends to use the bond proceeds to refinance bank loans raised at opco levels. GPI's consolidated leverage therefore will not increase as a result of the transaction.
The bond documentation includes a cross-default provision with debt raised at the issuer, guarantor and subsidiary levels as well as a cap on additional debt and restrictions on distributions (both with carve-outs) when the pro-forma leverage ratio is higher than 3.5x. We note that the change of control clause does not prevent APM Terminals - one of the two co-controlling shareholders - to dispose of its 30.7% stake in GPI as the bondholders' put option is exercisable only if a new shareholder gains 50% or more of GPI share capital.
The notes' 'BB(EXP)' rating reflects our assessment of GPI's consolidated credit profile as the unconditional and irrevocable guarantee from the three major opcos give bondholders full and unconditional access to group cash flow generation. The rating of GPI, the holdco, is notched down one level to 'BB-' to reflect the ring-fencing features included in some subsidiaries' bank financing. These features, namely financial covenants at single borrower level, prevent GPI's rating from being aligned with our assessment of the group's consolidated profile.
For additional information on GPI's ratings see "Fitch Downgrades Global Port Ratings to 'BB-'; Negative Outlook" dated 9 September 2016 at www. fitchratings. com.
The notes' rating is credit-linked to GPI's Long-Term IDR. Future development that could lead to negative rating action on GPI and the notes include:
- GPI's Fitch-adjusted consolidated debt/EBITDA remaining above 5x over 2017-2019 in Fitch's rating case.
- Adverse policy decisions - such as the introduction of a tariff cap - or geopolitical events affecting the port sector.
- A change in shareholder structure with the co-controlling shareholder APMT disposing partly or entirely of its stake in GPI, which may affect our analysis of some rating factors such as refinancing risk and potentially GPI's ratings
The Outlook could be revised to Stable if GPI leverage is firmly on a downward path with Fitch-adjusted net debt to EBITDA falling below 4x over three years.