Fitch Affirms Peru Payroll Deduction Finance Ltd Sr. Secured Class A Notes at 'BBB'; Outlook Stable
--Class A zero-coupon notes due 2029 with a notional amount of approximately USD230 million at 'BBB'.
The Rating Outlook remains Stable.
The underlying issuance is a securitization of 'Retribucion por Inversiones - Certificado de Avance de Obras' or RPI-CAOs, future payment rights from Seguro Social de Salud (EsSalud). The RPI-CAOs are related to the construction of two hospitals and two medical distribution centers in the greater Lima metropolitan area. Pursuant to three Public Private Partnership (PPP) agreements, Villa Maria Salud, Callao Salud, and Salog (the operators) build and operate their respective projects. All generated RPI-CAOs are sold to the trust and are not subject to any condition or performance obligation relating to the concession agreements.
Under the master trust, retribucion por inversiones (RPIs) and retribucion por mantenimiento y operacion (RPMOs) are pari-passu. RPI and RPMO payments are supported by the flows transferred to the master trust related to the mandatory social security contributions received by EsSalud. The local trustee is authorized to increase the amount transferred to the master trust from 12% of those revenues to the required amount to guarantee a minimum 1.25x the annual debt service.
KEY RATING DRIVERS
Stable Sovereign Environment:
On Sept. 30, 2015, Fitch affirmed Peru's foreign currency (FC) and local currency (LC) Issuer Default Ratings (IDRs) at 'BBB+' and 'A-', respectively, with a Stable Rating Outlook. Contributions (social security payments) are collected by SUNAT, the state tax collection agency, and deposited into an account at Banco de la Nacion (BN) ('BBB+'/'A-'), a government entity. The transaction's rating is linked to the FC and LC IDR of Peru.
Increasing Social Security Contributions:
During the last 12 calendar months mandatory social security contributions, which back the RPI - CAO payments, increased by 10.2% with respect to the same period of the previous year and represent over 97.6% of total EsSalud collections. The increased contributions are driven by steady growth of the insured population while unemployment has followed a downward trajectory. Contribution levels significantly below expectations may limit future debt issuances out of the program and may negatively affect the rating of existing series.
No Construction/Performance Risk:
Once an RPI-CAO is issued, it becomes an unconditional and irrevocable obligation of EsSalud. The risks related to the transaction are not related to the successful completion or completion of the projects.
Transaction DSCRs consider the flows transferred to the master trust and expected debt service payments, composed of RPI - CAO and RPMO payments, for the following 12 months. RPMO payment obligations, which are not part of the transactions collateral, represent the majority of the debt service payment. As of July 2015, transaction yearly annual DSCR was 1.5x., comfortably above the 1.25x trigger and in line with Fitch's expectations.
Adequate Program Size:
Current payment obligations under the master trust represent a relatively small percentage of the company's balance sheet and at their current size do not constrain the rating of the program. However, the future issuances under the master trust may impact the assigned rating.
Currency Exchange Exposure:
Payment obligations related to the projects included in the master trust are denominated in US dollars, while social security contributions are denominated in Peruvian soles exposing the transaction to foreign exchange risk. This exposure is partially mitigated by current DSCR levels and transaction's feature that allows the local trustee to request social security contributions above 12%. However, this action could affect other EsSalud's obligations increasing the exposure to potential political risk.
The transaction could benefit from a significantly high percentage of EsSalud revenues to meet debt service. However, Fitch believes that large increases to the transferred amount may cause EsSalud to experience financial pressure, which could increase incentives from the government to interfere. Furthermore, the social security contributions are deposited into the government owned Banco de la Nacion, increasing the potential for political risk.
Credit Quality of EsSalud:
EsSalud is an autonomous public institution that is 100% held by the government of Peru through the Ministry of Labor and its board of directors. The credit quality of EsSalud will not affect the collateral as the generation of the cash flow needed to meet timely debt service is not dependent on EsSalud; however, in case of a considerable deterioration in the credit quality of EsSalud, the rating of the transaction may be negatively affected.
The rating assigned to the notes is sensitive to changes in Peru's sovereign ratings as well as a decrease in social security contributions. Although the transaction will be sensitive to downgrades of the LC and FC IDRs assigned to Peru, an upgrade to the IDRs will not automatically lead to an upgrade of the transaction rating.
Furthermore, contribution levels significantly below expectations may limit future debt issuances out of the program and may negatively affect the rating of existing series.
In addition, the current program size does not constrain the rating assigned to the transaction; however, the assigned rating is sensitive to the incorporation of any future projects into the master trust that would increase the program size and pressure the transaction metrics.
DUE DILIGENCE USAGE
No third-party due diligence was provided to or reviewed by Fitch in relation to this rating action.