OREANDA-NEWS. Fitch Ratings has affirmed Channel Link Enterprises Finance plc's (CLEF) notes, as follows.

GBP300m Class G1 index-linked notes: affirmed at 'BBB', Outlook Stable
GBP150m Class G2 index-linked notes: affirmed at 'BBB', Outlook Stable
GBP300m Class G3 index-linked notes: affirmed at 'BBB', Outlook Stable
EUR73m Class G4 index-linked notes: affirmed at 'BBB', Outlook Stable
EUR147m Class G5 index-linked notes: affirmed at 'BBB', Outlook Stable
EUR147m Class G6 index-linked notes: affirmed at 'BBB', Outlook Stable
GBP400m Class A1 fixed-rate notes: affirmed at 'BBB', Outlook Stable
EUR645m Class A2 fixed-rate notes: affirmed at 'BBB', Outlook Stable
GBP350m Class A3 floating-rate notes: affirmed at 'BBB', Outlook Stable
EUR953m Class A4 floating-rate notes: affirmed at 'BBB', Outlook Stable

The affirmation is based on the robust financial and operational performance of the Fixed Link (railway) business unit (Eurotunnel, the operator) of Groupe Eurotunnel, which is reflected in CLEF's healthy debt service coverage metrics. CLEF benefits from the critical nature of the underlying infrastructure asset (Channel Tunnel railway link), strong regulatory oversight (UK and French), the key Eurostar route and a long 36-year tail before concession maturity.

KEY RATING DRIVERS
Fitch's ratings are based on the following factors, among others:

Revenue Risk: Volume - Midrange
Eurotunnel delivered revenue growth for the Fixed Link business of 6% each in 2014 and 1H15. This was driven by increasing volumes on the back of improvements in the UK economy.

Although Fixed Link traffic is exposed to discretionary demand, facing competition from ferry operators in the Short Straits, traffic volume has proven to be fairly resilient through the crisis. Also, volumes have been picking up since 2010, mainly due to strong recovery in UK and Groupe Eurotunnel's (GET) ability to seize market opportunities.

Revenue Risk: Price - Midrange
Revenue growth over the last two years has been partially fuelled by a healthy yield policy, albeit differentiated among the Fixed Link business lines. Shuttle Service fares are highly flexible in adapting to market dynamics with minimal legislative or political interference, while Railway Network fares are regulated by the Railway Usage Contract signed with British Railways Board and SNCF.

Since 2012, GET has thus been able to leverage against its competitive advantages in the Short Straits market to increase Shuttle Service fares; on the contrary, the current low inflation in the euro zone and UK is constraining revenue growth in Railway Network.

Operation Risk - Midrange
GET is highly experienced in operating and maintaining the Channel Tunnel and benefits from strong UK and French government oversight. Although the company is committed to strong cost control, opex has recently moderately risen in response to the overwhelming migrants issue at Calais. The capex budget is reasonable (albeit on an unreserved basis) and is focused on new shuttles, upgrade of UK/French terminals and signalling systems updates. Ample spare capacity allows volume increase without incurring heavy structural capex.

Debt Structure - Stronger
CLEF is based on a typical issuer-borrower secured structure, bankruptcy-remote vehicle with own liquidity reserve (DSRA), a robust inter-creditor agreement at borrower's level and considerable tail. Debt is fully amortising (some back-ended profiles). Interest rates on the notes are largely fixed, with an element of index-linked debt, which is not automatically hedged with revenue increase. Structural features include standard default / distribution tests, with cash sweep mechanism. Although not standard for transaction of this kind, lack of mandatory capex provisioning is mitigated by a post-capex dividend debt service coverage ratio (DSCR) test.

Debt Service
In general, CLEF's performance is comparable to Fitch's base case established in 2007. As per the compliance certificates, senior DSCR was 1.67x for the period ended June 2015 (including a margin step-up on FRNs). This is above 1.49x for the year ended June 2014, due to Fixed Link's financial performance over the period. Our forecast rating case average DSCR and minimum loan life cover ratio (LLCR) are 1.4x and 1.2x respectively, and in line with previous forecasts.

Forecast Fitch rating case metric (average DSCR) compares favourably with the 'BBB' rating guidance provided in Fitch's Rating Criteria for Toll Roads, Bridges and Tunnels.

Peers
Average DSCR and LLCR are broadly in line with rail projects in the peer group (High Speed Rail Finance (1) PLC (HS1; A-/Stable), City Greenwich Lewisham Rail Link plc (CGLR; BB+/Positive)). Compared with the volume-driven CGLR project, CLEF benefits from a much wider catchment area and the highly stable Eurostar demand.

There are clear similarities with HS1, the UK link to the Channel Tunnel, although CLEF does not benefit from having 60% of its revenues supported by the UK government via underpinned "availability" payments for domestic rail. However, the two projects share Eurostar volumes, which are considered reliable. CLEF's 36-year tail is in excess of that offered by any peer, emphasising the value of this feature to the transaction.

RATING SENSITIVITIES
A negative shock (i.e. macroeconomic, competitive, event-driven) that results in significant loss of volumes through the tunnel and a sustained weakening in financial performance could result in negative rating action.
Conversely, substantial and sustained outperformance of Fitch's rating case could result in positive rating action, although we do not consider this likely in the near term.

SUMMARY OF CREDIT
CLEF is a ring-fenced structure focusing on the original Eurotunnel core activities (infrastructure operator for railway services, its shuttle services for both trucks and car passengers) and excludes other activities such as Europorte and MyFerryLink. Fixed Link revenues account for around 70% of Groupe Eurotunnel's total turnover.

Eurotunnel is the concessionaire and operator of the Channel Tunnel, the fixed railway link between the UK and France in operation since 1994.

In the analysis of this transaction, Fitch applied both the Rating Criteria for Infrastructure and Project Finance as well as the Rating Criteria for Toll Roads, Bridges and Tunnels. The Fixed Link is a rail project; nonetheless, the bulk of the revenues come from truck and cars using the shuttle, so that the economics of the project are largely similar to a road tunnel.

Furthermore, CLEF is considered stronger than a typical stand-alone road stretch, mainly in light of the critical nature of the infrastructure asset which enables the Fixed Link business to benefit from a much wider catchment area (substantially the whole of UK and its trade relations with continental Europe) than would normally be for a single-asset project.