MONTERREY, Mexico & NEW YORK--(BUSINESS WIRE)--Fitch rates Red de Carreteras de Occidente, S.A.B. de C.V.'s (RCO) MXN7,500 million senior secured notes 'BBB-'. The Rating Outlook is Stable.
In addition, Fitch affirms the MXN8,126 million senior secured notes rating at 'AAA(mex)', Stable Outlook. The notes were placed in the Mexican market in September 2012, and benefit from a limited guarantee from Banobras.
KEY RATING DRIVERS
DIVERSIFIED AND STRATEGICALLY LOCATED ASSETS: The company's pool of toll roads are located in one of Mexico's most dynamic regions, which accounts for around 15% of national GDP. They are part of the diversified system of trunk routes that serve major industrial centers and cities, and that connect the two largest cities in Mexico. Historical performance since the early 1990s has been positive and has been resilient to economic downturns, experiencing just slight decreases even during deep crises.
TIMELY TOLL RATE INCREASES: Toll rates can be increased annually with inflation, while additional increases can be approved whenever Mexico's Consumer Price Index (CPI) exceeds 5% in a given year. This feature is crucial, especially since a portion of the rated debt is linked to inflation. Tolls have historically been adjusted in a timely manner.
WELL-MAINTAINED INFRASTRUCTURE: The 470 miles of the six asphalt roads are in good physical condition having been upgraded under the terms of the concession agreement. Since 2008, RCO has invested close to MXN2,600 million in capital expenditures. Pursuant to the agreement, the company has to invest in additional mandatory roadway and network improvements, for which MXN1.1 billion has already been invested. The remaining investment has already been funded in a separate trust.
STANDARD DEBT PROTECTIONS; REFINANCING RISK REMAINS: A large portion of the initial 2007 debt is due between 2014 and 2018. RCO's flexibility to execute refinancings in more digestible amounts over a few years is a partial mitigant to this risk. The rated structure has distribution triggers and reserve accounts that are in line with industry standards. Denomination in MXPs at a fixed interest rate eliminates variable-rate risk.
FINANCIAL RESILIENCE UNDER STRESS CONDITIONS: Even under harsh scenarios, the debt service coverage profile (including all current and proposed bonds) is robust and growing. Fitch's base case resulted in a minimum debt service coverage ratio (DSCR) of 1.16x that averages 1.92x from 2013 to 2032, and loan life coverage ratio (LLCR) of 1.93x. Fitch's downside rating case resulted in a minimum DSCR of 1.07x that averages 1.55x from 2013 to 2032, and LLCR of 1.62x. In addition to economic and operating stresses, the latter case incorporated interest rate sensitivities.
RATING SENSITIVITIES
--Meaningfully higher actual interest rates on refinanced debt than currently projected by the Sponsors;
--Traffic growth expectations of below 2.0% over a prolonged period;
--Operating and major maintenance expenditures growing 10.0% above inflation for a prolonged period;
--Significantly higher capital costs in connection with mandatory roadway and network improvements;
--Weaker overall financial flexibility resulting in an LLCR profile below 1.60x under Fitch's base case.
SECURITY
The collateral in favor of the holders of RCO's senior debt, consists of: i) the trust estate established under the Payment Trust Agreement, including any moneys deposited into the project accounts; ii) all of RCO's tangible and intangible assets (excluding its rights under the Concession Agreement, its rights under the toll road O&M Agreement and the other items of property or rights assigned or that may be assigned to the Payment Trust) belonging to the issuer and used by it in connection with the activities contemplated in the Concession Agreement; and iii) the stock of RCO held by all of its shareholders. The collateral does not include a security interest in any of the ownership interests in Concesionaria Irapuato La Piedad, S.A. de C.V. (CONIPSA) and Concesionaria de Vias Irapuato Queretaro S.A. de C.V. (COVIQSA)or any of the assets of such subsidiaries.
TRANSACTION SUMMARY
RCO issued MXN7,500 million senior secured notes (the 2013 notes) with legal maturity in 2028. The notes are structured with a close to six-year grace period of interest payment only, under a scheduled amortization, and a 9.0% fixed interest rate that is payable biannually.
Proceeds from the 2013 notes were used to prepay bank debt, fund the debt service reserve account (DSRA), and pay several fees and issuance expenses. Structural protections include: 12-month DSRA of interest and principal, five-months reserve account for major maintenance, and a restriction of distribution payments whenever i) DSCR is under 1.25x, ii) there is any event of default, or iii) the balance of the liquidity facility surpasses certain predefined thresholds.
In 2007, RCO was awarded a 30-year federal concession over a four-toll-road package known as 'Farac I'. All of the roads have been in operation since the early 1990s and are located in West Central Mexico, connecting Guadalajara and Mexico City, two of the largest metropolitan areas in the country.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 11, 2012);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels' (Aug. 2, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867
Rating Criteria for Toll Roads, Bridges, and Tunnels
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684146
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=792851
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