Fitch Affirms ACI Airport SudAmerica's $200MM Sr Secured Notes at 'BB+'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has affirmed the long-term rating assigned to ACI Airport SudAmerica, S.A.'s (ACI) USD200 million senior secured notes at 'BB+'. The Rating Outlook remains Stable.
The affirmation reflects Carrasco International Airport's (MVD) strategic but modest traffic base and its strong O&D share of passenger traffic, coupled with a midrange debt structure. Credit metrics are strong for the rating category according to applicable criteria, with the rating constrained to sub-investment grade levels over the medium term due to weak debt service coverage ratios (DSCRs) up to 2019 and, to a lesser extent, to termination risk up to 2018. Debt repayment is not dependent upon traffic growth, withstanding a negative 2.06% CAGR over debt tenor. Compared to rated peers (Lima Airport Partners S.R.L.'BBB+'/Stable Outlook and Aeropuerto Internacional de Tocumen 'BBB'/Negative Outlook), MVD has a significantly lower enplanement base and weaker near-term financial coverage ratios.
KEY RATING DRIVERS
Fitch's ratings are based on the following factors, among others:
Important Small-Scale International Gateway with Little Reliance on Growth [Revenue Risk - Volume: Midrange]: Located in Uruguay's capital city, MVD is the main international gateway to Uruguay with approximately 85% of the country's flights. MVD is almost exclusively an O&D airport with only 2% of passengers transferring to other destinations. CAGR for 2006-2014 was 5.5%, despite the bankruptcy of the country's flagship carrier, Pluna, and the resulting loss of capacity and status as a regional hub. Growth for 2015 was only 0.3%, as a result of traffic reduction from Brazil and Argentina and FX devaluation in Uruguay. Despite expected 2016-2032 CAGR of 2.56%, the project does not depend on growth to meet its obligations.
No Significant Investments Needed [Infrastructure Development & Renewal: Stronger]: The airport's current capacity of 4.5 million passengers/year is well below management's forecast of 2.5 million-3 million passengers at the end of the concession term. Under the amended concession agreement which extended the term through 2033, the new taxi-way construction (USD10 million) was extended until the end of the concession, with no other significant mandatory investments needed in the remaining term.
Inflation and Exchange Adjusted Tariffs [Price Risk: Midrange]: Revenues are 95% denominated in USD with Aeronautical revenues being adjusted by a global index that considers foreign exchange and inflation rates. Tariffs do not decrease under the adjustment scheme; however, increases have occasionally been subject to political risk. No increase in tariffs is assumed over the life of the concession.
Subordinated Fixed-Rate Amortizing Issuance [Debt Structure: Midrange]: A 'springing guarantee' covenant requires Puerta del Sur S.A. (PDS, or the opco) to issue a guarantee of the rated debt following the payment in full of opco debt in 2021. The amortization schedule is back-loaded. Cash flow available for debt service (CFAD) for the rated debt is structurally subordinated to the notes issued at the opco level and subject to dividend distribution tests through maturity of the opco notes in October 2021. Lock-out of dividends is considered highly unlikely, as a trigger breach prior to 2021 would require severe stress in traffic declines in excess of 40%. Should a lock-out occur, the issuance also benefits from deferrable debt service for up to 12 months.
Limited Exposure to Termination Events: Breach of contract termination events are standard and manageable by the concessionaire; however, a unilateral termination for public interest by the government in the short term (prior to 2018) would leave the transaction exposed to a loss of less than 10% given the debt level and subordinate nature of the issuance. Fitch considers the risk unlikely given (i) the recent extension of the concession and general public good-will for the project; (ii) the increased concession fee paid by the concessionaire to the government; (iii) the airport's operating status with no material infrastructure construction needs; and (iv) the stability of Uruguay as an investment grade country.
Moderate Financial Metrics: DSCRs average 1.76x and 1.50x for the base and rating cases, respectively. Despite strong average coverage ratios for the issuance, coverage in the early years of the transaction life is weaker. Respective minimum DSCRs for the base and rating cases are 1.25x and 1.13x, with the minimums occurring in the near term while the senior debt is outstanding. Consolidated leverage is low compared to 'BB+' peers, at 5.48x Net Debt / EBITDA in 2015 and expected 3.15x in 2021. No dependence on traffic growth to support debt requirements is needed, as breakeven annual traffic growth is negative 2.06%, considering ACI's debt service reserve account (DSRA).
Peer Group: The airport's nearest peers include Lima Airport Partners S.R.L. ('BBB+'/Stable Outlook), which serves as an international gateway airport with significant O&D (92%) and relatively low leverage (maximum net debt-to-CFADS ratio of 2.89x and base case DSCR average of 3.40x), and Aeropuerto Internacional de Tocumen ('BBB'/Negative Outlook), which serves as the main gateway to Panama and functions as both an O&D and transit facility to the region. Unlike these peers, Carrasco International Airport has a significantly lower enplanement base and weaker near-term financial coverage ratios, which limit rating upgrades in the short term.
Unlikely in the medium term, due to weak DSCR metrics up to 2019 and limited but relevant termination risk until 2018. Traffic performance consistently in line with Fitch's base case expectations could trigger a positive rating action after 2019.
Rating can be downgraded if traffic levels materially diverge from rating case projections in the mid- to long-term.
The airport's traffic performance in 2015 was slightly lower than Fitch's Rating Case (-3.3%), based on higher than expected international departing passengers (+2.6%), but lower than expected shuttle passengers (-18.1%; flights arriving from or departing to Aeroparque Jorge Newbery Airport, in the city of Buenos Aires). Also, there was no tariff increase under the Global Index Adjustment (GIA) in 2015; tariffs are USD42 per international departing passenger and USD19 per shuttle passenger.
The DSCR at ACI was 1.3x, in line with Fitch's rating case. Considering the debt service reserve account (DSRA) already funded at ACI and available cash at the opco, consolidated Net Debt / EBITDA was 5.85x, consistent with a 'BB+' rating.
Fitch expects 1.4% and 0.3% traffic growth for 2016 in the base and rating cases, respectively. Long-term traffic growth is expected to be higher than 2015-2016, at 2.56% and 1.48% CAGR in the 2016-2032 period. Nevertheless, debt repayment is not dependent on traffic growth as the break-even traffic annual growth rate is a negative 2.06%, considering ACI's DSRA.
Additionally, no tariff increases were considered under the GIA for both cases. Under the base case, minimum DSCR is 1.25x in 2018, with an average financial coverage ratio of 1.76x; under the rating case, the minimum DSCR is 1.13x in 2018, with an average financial coverage ratio of 1.5x.
The security package supporting the notes is typical for project financings and includes a pledge of 100% of the shares of the opco, PDS and a covenant to issue a guarantee from the entity; a pledge of 100% of the shares of Cerealsur S.A., direct owner of PDS's shares, and a guarantee from the entity; the transaction distribution, issuer and debt service accounts; all of the issuer's property; and all present and future payments, proceeds and claims of any kind with respect to the foregoing. The transaction includes a 'springing guarantee' covenant, which requires the opco to issue a guarantee of the rated debt following the payment in full of the opco debt in September 2021. Therefore, the rated debt will become pari passu with all senior unsecured debt at the opco because of the guarantee.