Fitch Rates Enaitinere's Senior Secured Notes 'BB-(EXP)'
The rating reflects the long remaining maturity of Enaitinere's toll road concessions (24 years) as a key mitigating factor to the high initial consolidated leverage of the ring-fenced perimeter (capturing debt raised by Enaitinere and the operating companies, OpCos), as measured by debt/EBITDA of approximately 12.0x. Remaining concession life and leverage are best reflected in the consolidated concession-life coverage ratios (CLCRs) under Fitch's base (1.33x) and rating (1.23x) cases, which consider a stressed interest rate environment pre and post maturity of the respective bullet debt instruments.
The rating incorporates the notes' covenant package and cash flow waterfall which address structural subordination of the debt at the SubHoldCo level (approximately 45% of total consolidated debt), the legal, operational, and strategic linkage between SubHoldCo and OpCos, and exposure to refinancing risks.
The assignment of the final rating is contingent on the receipt of final documents conforming to information already reviewed, including bond and loan amounts, interest rates, amortisation schedules, and covenants. If key terms of the final issue are significantly different to our assumptions, the final rating could be revised accordingly.
KEY RATING DRIVERS
Long and Mature Concessions (Volume Risk - Midrange)
Enaitinere has control over five mature toll roads, with the most recent concession awarded in 1995. Traffic has shown vulnerability to economic downturns in the past, with 2013 Average Annual Daily Traffic (AADT) 25% below the pre-crisis peak. However, the impact of the downturn on the group's concessions was lower than on other Spanish toll roads due to traffic profile characteristics (13%-15% heavy), demographics of the Galicia region, low competition, and the fairly resilient economy of the region compared with the rest of Spain.
Cash flow is somewhat concentrated in the key toll road - Autopistas del Atlantico, Concesionaria Espanola S.A. (AUDASA, responsible for around 50% of revenues). Fitch expects traffic volumes to continue to recover from crisis levels over the next few years in line with a recovery of the Spanish economy. As of end-August 2015, last 12-month traffic growth rates for individual toll roads ranged between 2.6% and 6.2%.
Tariffs Adjusted by Inflation (Price Risk - Midrange)
Tariffs are automatically adjusted on an annual basis, linked to Spanish CPI (although with a 12-month lag for central government concessions). As such, the concessionaires have limited flexibility to increase tariffs above inflation but are not floored at zero per cent in case of negative inflation. There is a long history of tariff readjustments without disputes.
Well Managed Capex Requirements (Infra Development & Renewal Risk - Midrange): AUDASA, the largest concession is undertaking a significant capex project involving expansion of the road and construction of the Rande bridge. The agreement with the grantor includes incremental tariffs to achieve an internal rate of return (IRR) of 8% on a total investment amount of up to EUR315m. The independent engineer's (IE) report indicates that the construction contract has adequate room to allow for cost overruns. The other concessions are mature and not expected to require major capex works. The IE has provided opinions on the budgets presented by Enaitinere and has deemed overall amounts and scope of works to be adequate.
Subordinated Interest Payments (Debt Structure - Weaker)
Debt is issued by the SubHoldCo, Enaitinere. Three of the OpCos carry outstanding debt, representing 55% of total consolidated debt, which, although bullet and with no restrictive covenants, have interest payments ranking senior to the interest and principal payments at Enaitinere. In addition, there is the potential for increased exposure to variable interest rates after 2018, when current hedging arrangements expire on the Enaitinere loan, as well as refinancing risk at both the OpCos and SubHoldCo level. Despite these weaknesses, the transaction benefits from structural protections at the SubHoldCo level. These include restrictions on dividend distributions to ultimate holding company Itinere Infrastructuras S.A.U. (Itinere or HoldCo) unless the target leverage of net debt/ EBITDA of less than 8.0x is met and SubHoldCo's bank loan amortises as per the target schedule. This acts as a mitigating factor if traffic volumes deviate from base case expectations, allowing for continued deleveraging, while minimising cash leakage to HoldCo.
Highly Leveraged Capital Structure
Enaitinere is expected to end 2015 with consolidated debt / EBITDA and net debt / EBITDA of approximately 12.0x and 10.6x, respectively. Fitch does not expect significant deleveraging to occur from 2016-2020 under the rating case, particularly given the expiration of the AP-1 EUROPISTAS concession in 2018.
Deleveraging occurs through the amortisation of the pari-passu loan with a syndicate of banks, as the rated bonds and OpCo debt are bullet. At bond maturity in 2025, net debt / EBITDA is expected to reach 7.8x in the Fitch base case (FBC) and 8.8x in the Fitch rating case (FRC), highlighting refinance risk. CLCRs at closing and at maturity are estimated at 1.23x and 1.29x respectively in the FRC, reflecting the long remaining maturity of the concessions.
Higher Leverage / Quality Assets versus Peers
Enaitinere benefits from longer concession maturities than similar Fitch-rated peers. Nonetheless, the 'BB-' rating reflects the SubHoldCo's corporate structure and its significantly higher leverage, as measured by debt/EBITDA of 12.0x and FRC CLCR of 1.23x in 2015, in contrast to Milano Serravalle Milano Tangenziali S.p.A. (BB+/Negative, net debt/EBITDA of 4.2x and CLCR 1.4x) and Autostrada Brescia-Verona-Vicenza-Padova S.p.A. (BB+/Stable, net debt/EBITDA of 3.1x and CLCR of 1.1x). While traffic performance during the crisis can be compared to toll road operators such as Brisa Concessao Rodoviaria S.A. (BBB/Stable) and Abertis Infrastructuras S.A. (BBB+/Stable), they have lower leverage and a stronger debt structure than Enaitinere.
The transaction's leverage metrics are affected by the end of the AP-1 Europistas concession in 2018. As such, net debt / EBITDA ratios are expected to decline between 2016 and 2018, before rising again in 2019.
The rating could be positively affected by improving operating and/or financial performance, including a combination of traffic and tariff growth rates, leading to net debt/EBITDA ratios below 10.5x in 2019, and consequently, to an expectation of net debt / EBITDA below 8.0x at bond maturity in 2025.
The rating could be negatively affected by deteriorating operating and/or financial performance, including a combination of traffic and tariff growth rates, leading to net debt / EBITDA ratios above 12.5x in 2019, and consequently, to a an expectation of net debt / EBITDA above 10.0x at maturity in 2025.
SUMMARY OF CREDIT
Enaitinere is a subholding vehicle created by Itinere to establish a ring-fenced structure, isolating the assets and debt of the ultimate HoldCo from those at Enaitinere and OpCos. Itinere is the second-largest Spanish toll road operator by network length (552.4km) and toll revenues (EUR268m in 2014). The company is responsible for five toll roads in Northern Spain, which although mature, have an average remaining concession life of 24 years. Of the five toll road concessions, two have been granted by Navarra and Galicia, respectively, and three have been granted by the Central Government of Spain.