Fitch Affirms Aeroporti di Roma at 'BBB+'; Outlook Stable
The affirmation considers AdR's solid operating and financial performance, its moderate leverage and robust tariff and concession framework (expiring in 2044), which compensates for a rather weak debt structure made up of only two bullet maturities. The rating also considers AdR's exposure to Alitalia's (AZ) ongoing restructuring plan as well as the limited visibility around potential acquisition risk and future dividend policy, especially whether financial investors should step in as AdR's minority shareholders.
KEY RATING DRIVERS
Revenue Risk: Volume - Midrange
AdR's diversified and resilient inbound traffic is supported by the attractiveness of Rome as a major international and tourist destination. Its exposure to competition is limited, as there are no other large international airports in AdR's wealthy catchment area. AdR has demonstrated traffic resilience (peak-to-trough during the 2008-2010 crisis saw a 5.5% decline), although the Italian recession has had some negative impact on 2012 and 2013 traffic figures. FY14 and 9M15 figures showed clear signs of traffic recovery (+6.4% and +6.8%, respectively), supported by growing passenger numbers on EU and domestic routes.
AdR's business model is constrained by the importance of loss-making AZ (41% of traffic at Leonardo da Vinci-Fiumicino Airport (FCO)), which operates a domestic hub-and-spoke network out of FCO. AZ's shareholder structure was recently strengthened when Etihad Airways PJSC (Etihad, A/Stable) gained a 49% stake in a new SPV that took over AZ's assets and operations. The "new" AZ is implementing a comprehensive restructuring and turnaround plan, but there is still no clear visibility on the medium-term prospects for its operating and financial performance and related impact on AdR traffic volumes.
Revenue Risk: Price - Midrange
AdR's tariff framework is better than in other major European airports, with a price-cap system operating within a dual-till system (upside on non-aeronautical revenues is not given back to airlines through rebates on aeronautical tariffs). The concession agreement signed with the central government provides revenue visibility (tariffs tracking inflation and capex) and offers higher protection against downside than most peers, through possible partial tariff adjustments in case of traffic losses. This gives revenue-price risk a solid Midrange attribute.
Infrastructure Development/Renewal - Midrange
The execution of a EUR3bn capex plan until 2022 (increasing to EUR11bn by 2044) is a major challenge for AdR and is key to increasing its tariffs and cash flow generation. The plan is notable in size, but could be downsized in the event of structural shocks on traffic volumes. AdR's limited track record in managing complex projects entails execution risk which, however, is substantially mitigated by the presence of the controlling shareholder Atlantia S.p.A. (A-/Stable), an experienced infrastructure operator with strong technical expertise in the development of large capex projects.
Debt Structure - Weaker
AdR's debt structure is weaker than most peers. Its concentrated bullet maturities expose AdR to refinancing risk, particularly given that it is not an active capital market participant. It has an undrawn EUR250m revolving credit facility (RCF) available, although this does not reduce the refinancing risk as it expires two years before the first bullet maturity in 2021 (a EUR600m bond under AdR EMTN programme).
AdR's debt is non-recourse to its parent Atlantia and consists of a mix of senior unsecured (bond, RCF) and secured (A4 tranche) instruments. Although still formally in place, in its analysis Fitch does not give credit to covenants and other creditors' protective features embedded in the A4 tranche as, in January 2015, Atlantia acquired 99.9% of the A4 notes. This, in our view, makes waivers or amendments on the notes simpler than in the past.
Fitch expects AdR's adjusted leverage at 1.5x at end-2015, which would be better than expected in last year's rating case. This mainly results from lower capex and higher traffic volumes. Under the updated rating case, a massive capex plan for FCO would bring AdR's net debt/EBITDA to around 3.0x-3.5x over the next five years.
Among Fitch-rated EMEA airport operators, the best comparables are Gatwick Funding Limited (BBB+/Stable), Brussels Airport Company S.A./N.V. (BBB/Stable) and Copenhagen Airports A/S (BBB/Stable for consolidated entity). Copenhagen has a similar role in the network with some hub functions operated by a financially troubled airline. Gatwick is similar in size and features a weaker track record in terms of resilience, but a stronger financial structure and catchment area. Brussels and Copenhagen have broadly similar asset attributes with a stronger debt structure but higher projected leverage (5.5x-6.0x).
The rating could be downgraded if AdR's financial performance is projected to deteriorate, with leverage consistently above 4.5x in Fitch rating case.
Clearer visibility on AdR's future acquisition strategy (and relevant funding) and dividend policy combined with positive development of AZ's restructuring process could be rating positive.
AdR's ratings are not capped by the sovereign rating of Italy (BBB+/Stable) and would not be automatically affected by a rating action on the sovereign. However, a sovereign downgrade caused by a deterioration of the domestic economic environment may prompt a rating review.
SUMMARY OF CREDIT
AdR is Italy's largest airport operator (seventh in Europe) serving 43.6m pax in 2014. It runs Rome's two airports, FCO (88% of total pax) and Ciampino (CIA, used by low cost carriers) under a long-term concession contract expiring in 2044. It has a strong origin and destination base with volumes underpinned by Rome's status as the national capital and an international tourist and religious destination.