SAO PAULO--(BUSINESS WIRE)--Fitch Ratings has affirmed the Foreign and Local Currency Issuer Default Ratings (IDRs) of America Latina Logistica S.A. (ALL) at 'BB-' and the National Scale Long-term Ratings of the company, its subsidiaries and their respective unsecured debentures at 'A(bra)'. Simultaneously, Fitch revised the Rating Outlook of the corporate rating to Positive from Stable.
A full list of the rating actions is shown below.
ALL's ratings continue to reflect the company's consistent cash flow generation through the economic cycle as well as its solid business position in the Brazilian railroad industry.
The company's adequate liquidity and the well-scheduled debt amortization program are also positive issues for the rating. ALL's ratings are currently constrained by its high leverage and limited FCF generation driven by its aggressive capex program.
Also included in the rating is the view that the regulatory risk for the railroad industry has moderated since last year, when the government announced measures affecting the sector, including cuts in the base tariffs. Since the government announcement, no tariff cuts or other negative initiatives against the concessionaires have taken place. The disposal of the Argentine operation - occurred during June 2013 - is viewed as a positive credit factor as this operation had been consuming cash and EBITDA generation.
The Positive Outlook considers the potential for ALL's business to deleverage over the next two years as volumes increase from the start-up of operations in the rail line segment from Alto Araguaia to Rondonopolis combined with the consolidation of the new business - Brado and Ritmo.
KEY RATING DRIVERS:
Solid Business Position:
The ratings incorporate the company's solid business position as the sole railroad transportation operator in the South and Mid-Western regions of Brazil, areas with high growth potential due to stable global demand for grain. ALL's business model has demonstrated resilience to adverse global economic conditions, as seen by the increasing volumes transported by the company in the last years. During the last 12 month period ended June 30, 2013 (LTM June 2013), ALL transported a total of 48.8 million tons per useful kilometer (RTK) as compared to 47.2 million and 46.5 million in 2012 and 2011, boosted by the increasing volumes of agricultural commodities.
Credit Linkage Incorporated:
The ratings of ALL's subsidiaries are at the same rating level as the parent company, ALL, due to the strong operational, financial and legal ties between the companies. This relationship relies on the majority ownership ALL maintains on its subsidiaries; the fact that the parent controls the management and the flow of dividends from the operational companies; the strong financial integration between the companies' operations; the cross guarantees between ALL and its railroad subsidiaries' debt; and the strategic importance of the railroad subsidiaries to ALL. Structural subordination risks due to ALL's status as a holding company are mitigated by the unrestricted cash distribution policy of its operating subsidiaries, and the guarantees that these Brazilian operational subsidiaries provides to the vast majority of ALL's debt.
High and Stable Margins, Future FCF Trend Positive:
ALL has presented consistent CFFO levels, boosted by its ability to capture additional volumes of cargo; its operating margins are high and stable. The company has consistently maintained cash flow from operations around BRL680 million during 2011 - June 2013 period, while the company's EBITDA margins remain stable in the 47% to 50% range during the same period. The ratings incorporate the expectation that the company's margin will remain stable and its CFFO will improve during 2013-2014 period.
FCF remains negative due to the high capex and despite the positive trend in the company's CFFO has not been enough to generate positive FCF due to large investments over the past five years. During LTM June 2013, the company's FCF was negative BRL198 million, due to BRL825 billion of capital expenses. Capex is expected to remain high, at about BRL1 billion per year over the next five years. ALL will be challenged to consistently increase its operational cash flow in order to boost FCF generation. FCF is expected to remain negative during 2013 but become slightly positive in 2014 onwards, and gradually improve, due to an increase in the company's transportation capacity coming from the new capacity added by the conclusion of the Rondonopolis project and the maturing of Brado project.
High Leverage:
ALL's leverage remains high. For LTM June 2013, ALL's consolidated adjusted net leverage, measured as net adjusted debt/EBITDAR ratio, was 4.8x. The company's total adjusted debt was approximately BRL10.4 billion at the end of June. This debt includes BRL10.2 billion in on-balance-sheet debt - mostly compounded by concession obligations, loans in Banco Nacional de Desenvolvimento Economico e Social (BNDES) and debentures - and BRL285 million in estimated off-balance-sheet obligations related to rental expenses. Total off-balance-sheet debt is calculated adjusting by 5x the company's rental payments of BRL57.1 million during LTM June 30, 2013.
ALL's net adjusted financial leverage has the potential to decline depending on the balance between the company's cash flow generation, which is expected to increase during the next two years, and the actual level of capex. Net adjusted leverage is likely to trend toward 4.5x by the end of 2013 and less than 4.0x by the end of 2014. Positive incorporated in the ratings is that part of Brado's expansion capex will be financed by a BRL400 million capital injection completed during the second half of this year.
Adequate Liquidity & Well-Scheduled Debt Payments:
ALL continues to maintain a good liquidity position, supported by approximately BRL1.9 billion of cash and marketable securities as of June 30, 2013. ALL's total adjusted debt was BRL10.4 billion, adjusted to the lease and concession off balance obligation of BRL286 million, being BRL1.4 billion due over the short term. The company's exposure to refinancing risk is manageable, as reflected by its satisfactory ratios of cash to short term debt of 1.4x and cash plus CFFO to short-term debt ratio of 1.9x.
The company has a manageable debt amortization schedule, with no concentration of payments. ALL's indebtedness is principally comprised of BRL2.2 billion of lease and concession obligations; BRL1.7 billion of debentures; and BRL2.7 billion of loans with the development bank, Banco Nacional de Desenvolvimento Economico e Social (BNDES).
RATING SENSITITIVY:
The ratings may be upgraded as a result of an improvement in the company's credit profile with a focus on an ongoing reduction in leverage, along with consistently high levels of liquidity. Improvement in the company's FCF generation and deleveraging, with the adjusted leverage trending below 4x times, would likely result in upgrade of the ratings.
A negative rating action is unlikely, but it could be triggered by a deterioration in the company's operational performance, or if leverage increases materially. Negative ratings actions could also result from acquisitions and/or investments that are not considered core to operations by Fitch, or if the company distributes an unexpected amount of dividends.
Fitch has affirmed the following ratings:
ALL:
--Long-term Foreign and Local Currency IDRs at 'BB';
--Long-term National Rating at 'A(bra)';
--Long-term National Rating of the 5th Debenture Issue at 'A(bra)';
--Long-term National Rating of the 6th Debenture Issue at 'A(bra)';
--Long-term National Rating of the 8th Debenture Issue at 'A(bra)';
--Long-term National Rating of the 9th Debenture Issue at 'A(bra)'.
--Long-term National Rating of the 10th Debenture Issue at 'A(bra)'.
ALL Malha Sul S.A.:
--Long-term National Scale Rating at 'A(bra)';
--Long-term National Rating of the 3rd Debenture Issue at 'A(bra)'.
ALL Malha Norte S.A.:
--Long-term National Scale Rating at 'A(bra)';
--Long-term National Rating of the 6th Debenture Issue at 'A(bra)'.
--Long-term National Rating of the 8th Debenture Issue at 'A(bra)'.
ALL Malha Paulista S.A.:
--Long-term National Scale Rating at 'A(bra)';
--Long-term National Rating of the 1st Debenture Issue at 'A(bra)'.
The Outlook for the corporate ratings is Positive.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology (including Parent and Subsidiary Rating Linkage)' dated Aug. 5, 2013.
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=803049
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