Fitch Rates Fideicomiso P.A. Pacifico Tres' USD and UVR Notes 'BBB-'; Outlook Stable
--USD260.4 million USD bonds at 'BBB-';
--COP397,000 million UVR bonds at 'BBB-'/'AA+(col)';
--COP300,000 million UVR loan at 'BBB-'/'AA+(col)';
--COP450,000 million COP Loan A at 'AA+(col)';
--COP150,000 million COP Loan B at 'AA+(col)'.
The Rating Outlook is Stable.
Final pricing for the USD notes was a coupon of 8.25%. UVR-denominated debt was priced at UVR+7.00% for the UVR Bond and UVR+7.50% for the UVR Loan. Additionally, COP A and B loans were priced at IPC+7.40% and IPC+7.60%, respectively. Projected coverage is consistent with Fitch's case at the time the expected ratings were assigned with LLCR at 1.44x. Breakeven analysis results are all in-line with Fitch's analysis at the time the expected rating was assigned.
The assigned ratings are based on the adequate mitigation of the project's exposure to completion risk, its low exposure to revenue risks, a manageable operational profile, the midrange credit profile of the public sector grantor counterparty Agencia Nacional de Infraestructura (ANI), the existence of a strong debt structure, and credit metrics commensurate with its rating category and applicable criteria.
KEY RATING DRIVERS
Completion Risk: Midrange
COMPLETION RISK ADEQUATELY MITIGATED: Construction works will be performed under a fixed-price date-certain engineering, procurement, and construction (EPC) contract with a consortium composed of all project sponsors (acting directly and not through affiliates). All obligations will be assumed on a joint and several basis. Constructora MECO is the only Fitch rated sponsor ('AA-(pan)'/Outlook Stable).
The project consists of the construction of short road stretches, the improvement of existing roads, two tunnels and several bridges. It involves a certain degree of complexity, such as the construction of the 3.4km Tesalia tunnel and the possibility of landslides due to unstable slopes. According to the independent engineer, the EPC contractor has the experience and the ability to successfully develop the project. The completion schedule is adequate and the performance bond and secured, multipurpose loan facility (SMF) facility provide enough liquidity to cover debt service should the EPC contractor need to be replaced.
Volume Risk: Midrange
LOW EXPOSURE TO VOLUME RISK: The project's revenues basically consist of ANI's contributions and toll revenues streaming from toll collection and traffic top-up payments. Traffic revenues are not subject to demand or price risk, even if traffic volumes are severely below expectations or expected price increases are not implemented. ANI will periodically compensate the concessionaire if toll collections are below the amounts established in the concession contract. ANI payment obligations under the concession agreement, viewed as midrange, are consistent with the credit quality of the grantor, ANI. The latter is viewed as a credit-linked entity to the Government of Colombia (Local Currency Issuer Default Rating 'BBB+'/ Outlook Stable).
Sources of revenue are subject to infrastructure availability, service levels and quality standards, based on fulfilment of indicators provided in the concession agreement. There are clearly defined, unambiguous, back-to-back penalty deduction mechanisms in the concession agreement with robust cure periods. Deductions are legally capped at 10%. Additionally, fines imposed on the concessionaire, as well as penalty clauses in case of an early termination of the agreement, are limited by the contract.
Price Risk: Midrange
INFLATION ADJUSTED TOLLS: Tariffs are annually adjusted by inflation rate at the beginning of the year. Toll rates are moderate and should the net present value of toll collections received by the 8th, 13th, 18th, and last year of the concession be below guaranteed values, ANI has the obligation to cover any shortfalls, after deductions.
Operation Risk: Midrange
O&M WORKS PERFORMED BY CONCESSIONAIRE: The independent engineer believes the concessionaire has the experience and the ability to successfully operate the project. The O&M plan, organizational structure, as well as the budget, appear reasonable and in line with similar projects in Colombia. Additionally, the concessionaire will have a liquid support instrument equivalent to the maximum amount of O&M expenses forecasted for six months. This instrument must be issued by a financial entity with a minimum credit rating of 'BBB-' or 'AA+(col)'.
Infrastructure Development/Renewal: Midrange
WELL-ESTABLISHED PLAN: The project depends on a moderately developed capital and maintenance plan to be implemented by the concessionaire, directly. Said plan will be largely funded from project cash flows. The concession agreement does not contemplate hand-back requirements. However, the concessionaire is to operate and maintain the roads according the pre-established standards at all times. The structure includes a dynamic 12-months forward-looking O&M reserve to account for routine and periodic maintenance expenditures.
Debt Structure: Stronger
ROBUST DEBT STRUCTURE - Fully amortizing, senior secured debt, comprising of USD, UVR and COP-denominated financings. USD-denominated debt is matched with USD-linked currency revenues settled in COP (49% of future budget allocations [Vigencias Futuras] are USD-linked), has been issued at a fixed rate. Furthermore, the transaction contemplates a short-term hedging mechanism provided by eligible counterparties to fully cover FX risk exposure. UVR and COP denominated debt are indexed to inflation and are not exposed to basis risk.
Structural features include multiple reserve accounts and a cash sweep mechanism. Robust liquidity mechanisms are in place to mitigate liquidity/budgetary risk, construction delays, and reduced cash flow generation due to low traffic performance. The transaction has a fully-committed revolving subordinated SMF, equal to 15% of outstanding senior debt, in which eligible lenders have committed to disburse funds to the project company when necessary. Additional liquidity includes 12-month principal and interest prefunded onshore and offshore debt service reserve accounts (DSRA).
ADEQUATE LOAN LIFE COVER RATIO (LLCR): Fitch's rating case's minimum and average natural debt service coverage ratios (DSCRs) are low for the rating category, at 1.0x and 1.21x, respectively, and reflect the project's revenue structure and overall leverage. However, the project's LLCR of 1.44x, which incorporate the transaction's available liquidity sources, is in line with Fitch's applicable criteria for the rating category and other similarly rated transactions.
Under Fitch's base case assumptions, calculated break-evens for the project's main risk exposures are strong and allow for severe reductions in toll revenues (approximately -91%), increases in O&M costs (approximately +96%) and Capex (approximately +36.7%), construction delays (approximately 24 months) and a negative inflation rate of 5.3% over the life of the rated debt. The transaction supports delays in traffic top-up payments of 18 months and deduction levels of 10%.
Peer Group: Conexion Pacifico 3 is comparable with ENA Este (rated 'BBB-'/'AA+(pan)') and Kentucky Public Transportation and Elizabeth River Crossings (both rated 'BBB-'). Like Conexion Pacifico 3, these roads involve a certain degree of complexity in terms of construction and similar characteristics for revenue risk, infrastructure development and renewal, and debt structure Although these peer's DSCRs are slightly higher, leverage for Pacifico 3 is substantially lower than its peers.
Positive Rating Action: Unlikely in the near to mid-term given the project's early completion stage.
Negative Rating Action: Unexpected completion difficulties leading to delays and cost overruns beyond those already contemplated in Fitch's scenarios, which could materially impact the project's liquidity position.
Negative Rating Action: Deterioration of Fitch's assessment of the credit quality of ANI and/or any change on Fitch's view regarding the credit quality of ANI's contributions may result in a downgrade to the notes.
SUMMARY OF CREDIT
The proceeds of the USD bonds, UVR bonds, UVR loans and COP loans A and B issued by Fideicomiso P.A. Pacifico Tres with Concesion Pacifico Tres S.A.S. as Co-Obligor will be used by the project company to pay for all financing-related expenses, pre-fund all the required accounts including the DSRA and O&M Reserve Account and finance a portion of the total project cost. Project resources will be administered through a separate trust to which all assets and liabilities of the project must be transferred, isolating project cash flows from other parties' risks
In September 2014, ANI, a national government agency ascribed to the Ministry of Transportation of the Government of Colombia, granted a 25-year concession for the construction, rehabilitation, improvement, operation and/or maintenance of the roads La Virginia - La Pintada and La Manuela - Tres Puertas - Irra and the associated infrastructure. The concession was awarded to Conexion Pacifico 3, a project company owned by Construtora El Condor (48%), Constructora MECO (26%) and Mario Huertas Cotes (26%).
The project aims to improve the connection between the productive centers of three of the most important regions in the country, Valle del Cauca, Antioquia and Eje Cafetero, with the port of Buenaventura on the Pacific coast.
The concessionaire will only be entitled to receive revenues once Functional Units have been fully constructed and accepted by ANI. The revenue streams for the project are underpinned by payments from the grantor and are related to the availability and compliance with service/quality levels of the infrastructure.
The construction phase should be accomplished in a maximum period of five years. The work is mainly related to improvements; only 28 km of new roads will be built. Major works include the construction of two-lane sections, a second road parallel to an existing one, two major tunnels including one of 3.4km in Tesalia, several minor tunnels and bridges, and cantilevers to expand the width of some tranches.
The project is divided into five functional units (FUs), defined as construction milestones of the road segments and are functionally independent. The concessionaire may start construction of the FUs at different points in time. When completed, FUs must meet expected quality standards and service levels in order to start operations
Below are Fitch's base case (BC) and rating case (RC) assumptions used in the analysis to calculate the different credit metrics, which include minimum and average natural debt service coverage ratios (DSCR) and Loan Life Coverage Ratio (LLCR):
GDP Base Case (BC): 2015: 2.8%; 2016: 2.6%; 2017-2020: 3.2%; 2021-2025: 3%; 2026-2030: 2.5%; 2031 onwards: 1.5%
GDP Rating Case (RC): 2015: 2.8%; 2016: 2.6%; 2017: 3.2%; 2018-2020: 3%; 2020-2025: 2.5%; 2026 onwards: 1%
Inflation Rate: 2015: 4.9%; 2016: 5.8%; 2017: 4.3; 2018 onwards: 3% / year (BC & RC)
TPD: Linked to GDP used Base Case (BC) Linked to GDP used Rating Case (RC)
Toll Rate: 100% (same as used in issuer's management case)
Opex: +5% (BC) +7% (RC)
Capex: +3% (BC) +5% (RC)
Construction delay (months): Three months for all FUs (BC) 6 months for all FUs (RC)
FBAs Payment delay (months): Three months (max delay before termination event) (BC & RC)
Traffic Compensation delay (% affected): 20% (BC & RC)
Traffic Compensation delay (months): 18 months (max delay before termination event) (BC & RC)
Performance Ratio: 97% (BC) 95% (RC)
Reinvestment Proceeds: Inflation Rate +0%
DSCR (Min): 1.06x (BC) 1.0x (RC)
DSCR (Avg): 1.25x (BC) 1.21x (RC)
LLCR: 1.46 (BC) 1.44x (RC)
Debt / CFADS: 7.14x (BC) 7.39x (RC)
The secured parties benefit from a first-priority security interest in, control over, and lien on all of the issuer rights in the indenture trustee accounts and the funds, financial assets and other properties deposited and to be deposited in such accounts.
Senior lenders share common collateral on a pari passu basis in relation to all current and future debt of the project company. All proceeds from the collateral will be paid to the intercreditor agent, who, in turn, will distribute the monies to the secured parties. None of the parties will have the right to take independent enforcement in respect to the common collateral.