NEW YORK--(BUSINESS WIRE)--Fitch Ratings has revised the Rating Outlook on Autopistas del Nordeste (Cayman) Ltd's (AdN) $162 million senior secured notes to Stable from Positive and affirmed the long-term rating at 'B'. The Outlook revision results from Fitch's recent Outlook revision to the Dominican Republic's Sovereign rating.
Key Rating Drivers
--Strong support from Government: The government pledged a Minimum Revenue Guarantee (MRG) throughout the life of the notes;
--Financial guarantee: The notes are protected by a partial political risk guarantee (PPRG) provided by a reputable multilateral organization;
--Limited competition: Autopista del Nordeste provides the shortest access from Santo Domingo to Samana, reducing the travel distance significantly;
--Predictable operating costs: A fixed operation and maintenance agreement with experienced operator considerably reduces cost escalations;
--Substantial counterparty risk: The legal framework and business environment in the Dominican Republic are fragile, leaving investors' rights with limited protection;
--Low traffic performance: The road is currently in a ramp-up period. Traffic performance has been below projections for this period and highly depends on MRG support.
What Could Trigger a Rating Action
--Government defaults on honoring the MRG, and/or a rating action on the Sovereign rating;
--Significant and continued improvement to traffic could allow the project to become self-sustained.
Security
The notes are secured by all revenues received by the company, the rights of the concession, contracts and all issued and outstanding shares of the company pledged to the Trustee.
Credit Update
On Dec. 11, 2012, Fitch revised the Rating Outlook on the Dominican Republic's rating to Stable from Positive. The agency also affirmed the long-term foreign and local currency Issuer Default Ratings (IDRs) at 'B'; and affirmed the Dominican Republic's Country Ceiling at 'B+'. The Outlook revision on the Dominican Republic has triggered an Outlook revision on the notes issued by AdN. AdN's ability to meet its financial obligations significantly depends on the government's ability and willingness to timely honor its MRG payment, given that traffic performance has historically been below initial projections.
The government's MRG, designed to cover the costs associated with O&M and to service the debt issued for the construction of the road, ensures the timely payment of the road's financial obligations. Fitch believes the level of revenues guaranteed provides adequate flexibility for the project to face unexpected increases in costs and to service debt on a timely basis.
The Congress of the Dominican Republic previously approved the Memorandum of Completion of the Stage of Design Revision and Traffic Demand Study, and the Memorandum of Completion of the Stage of Realizing the Financial Closing. Congressional approval of the memorandums formalized the obligation of the Dominican government towards the project, as stated in the Concession Contract. Fitch is of the view that this explicit financial obligation by the government largely reduces revenue risk.
Additionally, AdN has in place a partial political risk guarantee provided by the Multilateral Investment Guarantee Agency (MIGA). In the event that the government fails to meet timely payments under the MRG, the MIGA policy will be triggered. Expected disputes over a breach of contract will be solved through the American Arbitration Association in New York courts.
Under the MIGA guarantee, MIGA would make a compensation payment of an amount up to 51% of any scheduled interest or principal of the outstanding debt that is the result of political events including breach of contract.
The toll road, completed in 2009, extends along 106 kilometers (approximately 66 miles), connects Santo Domingo with the northern province of Samana, and includes three toll plazas. In comparison to alternative roads in the region, AdN considerably reduces the travel distance between Santo Domingo and Samana.
Autopistas del Nordeste (Cayman) Limited is the issuer, created under the laws of the Cayman Islands, and is an exempted limited liability company owned by a consortium composed of: Organizacion de Ingenieria Internacional SA, Odinsa Holding Inc., CI Grodco S en CA Ingenieros Civiles, Grodco Panama, Consorcio Remix, Caribbean Basin Construction Corporation Ltd.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
'Rating Criteria for Infrastructure and Project Finance' July 12, 2012
'Rating Criteria for Toll Roads, Bridges and Tunnels' Aug. 2, 2012
'Criteria for Partial-Credit Guarantees in Emerging Markets' April 18, 2012
Applicable Criteria and Related Research:
Criteria for Partial-Credit Guarantees in Emerging Markets
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=677063
Rating Criteria for Toll Roads, Bridges, and Tunnels
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684146
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867
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