NEW YORK--(BUSINESS WIRE)--Fitch Ratings has placed the 'B' rating for Autopistas del Nordeste (Cayman) Ltd's (AdN) $162 million senior secured notes long-term rating on Rating Watch Negative.
KEY RATING DRIVERS
--Weakening Governmental Support: Initially the government of the Dominican Republic pledged a Minimum Revenue Guarantee (MRG) that protects noteholders from the risk of insufficient traffic over the life of the notes. The government has continued to honor this pledge, but delays in payment and the failure to provide a mandatory letter of credit have weakened the project's liquidity.
--Financial Guarantee: The notes benefit from a partial political risk guarantee provided by the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank Group. The failure by the government to honor the MRG is covered under this guarantee; however, disbursements can be delayed and internal liquidity is essential to the project's capacity to service debt.
--Low Internal Cash Flow Generation: Traffic performance on the road has been far below initial projections and the project is heavily reliant on support from the MRG to remain viable. While the possibility exists for traffic levels to increase substantially, this is an unlikely scenario in the near to intermediate term.
--Predictable Operating Costs: A fixed operation and maintenance agreement with an experienced operator considerably reduces cost escalations. Additionally, the project benefits from oversight from an independent engineer who provides quarterly reports on the status and necessity of current and future maintenance.
--Substantial Counterparty Risk: The Dominican Republic's 'B' rating and Stable Outlook are underpinned by its resilient and diversified economy, high per capita income, track record of macroeconomic stability and sustained access to official lending and international capital markets. However, these strengths are balanced against structural weaknesses in fiscal accounts such as a narrow revenue base and rigid budget expenditure, rising government debt and external financing needs, and a weak external liquidity position.
RATING SENSITIVITIES
--Government fails to honor the financial commitments related to the MRG on a timely basis, 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, MRG and all issued and outstanding shares of the company pledged to the Trustee.
CREDIT UPDATE
AdN's ability to meet its financial obligations continues to depend primarily on the government's ability and willingness to honor the MRG payments on a timely basis, given that traffic performance has historically been well below initial projections. According to AdN management, the change in the government administration that occurred in mid-2012 combined with a significant fiscal deficit in the country has caused delays of over three months in the receipt of the MRG payments. While management has received assurances that these delays will be resolved in 2014, the delay in payment prior to the quarterly distribution due in October 2013 resulted in a draw on the major maintenance reserve account in order to fully pay principal and interest. The payment from the government was received within a week of the distribution and all accounts were subsequently filled; however, the MRG payment to be utilized for the January quarterly distribution is currently over 60 days delinquent.
Additionally, the transaction counts on a stand-by letter of credit (LOC) to provide liquidity should the trust experience delays in the receipt of the MRG payment. However, the LOC is not currently in place which necessitated the draw on internal reserves to meet the October quarterly payment. This letter of credit has previously been roughly equivalent to three months of debt service and in combination with the debt service reserve account (DSRA) and other fungible accounts within the transaction represent approximately 15 months of debt service. Without the LOC, the transaction has roughly 12 months of liquidity to pay debt service on a timely basis.
The partial political risk guarantee provided by MIGA is available in the event that the government fails to meet timely payments under the MRG. 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 guarantee is not payable on a timely basis though and the transaction depends on the liquidity available internally to meet debt service obligations prior to receipt of MIGA funds.
Fitch views the timely payment of MRG amounts by the government and the maintenance of mandatory liquidity amounts as essential factors in maintaining the rating of the notes.
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'.
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:
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=720736
Criteria for Evaluating Third-Party Partial Credit Guarantees
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=711755
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=810788
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