NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'B' rating for Autopistas del Nordeste (Cayman) Ltd's (AdN) $162 million senior secured notes, removed the rating from Negative Watch, and assigned a Stable Outlook.
The rating action is supported by the Dominican Republic's recent authorization of a Stand-by Letter of Credit (SBLC) as required under the concession agreement, and payment of the Minimum Revenue Guarantee (MRG) in a more favorable time-frame compared to payments received in 2013. AdN 's ratings are primarily based on the MRG from the government of the Dominican Republic (rated 'B'; Outlook Stable by Fitch), and a partial credit guarantee from the Multilateral Investment Guarantee Agency (MIGA) because current and expected future toll revenues fall below levels required to service debt and cover project costs.
Key Rating Drivers
Adequate governmental support: The government of the Dominican Republic pledged an MRG that protects noteholders from the risk of insufficient traffic over the life of the notes. The government has continued to honor this pledge and Fitch expects required payments to be made over the life of the notes, albeit with delays.
Financial guarantee: The notes benefit from a partial political risk guarantee provided by the MIGA, a member of the World Bank Group. A failure by the government to honor the MRG would be covered under this guarantee; however, disbursements can be delayed and internal liquidity is essential to the project's capacity to service debt. Fitch believes the MIGA guarantee provides additional incentives for the government to honor its obligations under the transaction.
Conservative Debt Structure: The notes are fully amortizing, fixed-rate obligations with an adequate covenant package. Liquidity available within the structure includes a six-month debt service reserve account and a 12-month major maintenance reserve account. These reserves in combination with the SBLC provided by the government, account for liquidity to cover approximately 15 months of debt service. [Debt Structure: Stronger]
Low-volume tourist asset: The toll road connects Santo Domingo and the northern province of Samana. The road provides an efficient route, but has competing free alternatives. Moreover, actual traffic remains far below initial projections requiring substantial payments via the MRG. [Revenue Risk - Volume: Weaker]
Regular toll increases: Under the concession agreement, the operator of the road is able to increase tolls up to inflation and has historically completed annual rate adjustments to account for inflation. [Revenue Risk - Price: Midrange]
Predictable operating costs: A fixed operation-and-maintenance agreement with an experienced operator partially mitigates substantial cost escalations. Additionally, the project benefits from oversight from an independent engineer who provides quarterly reports to investors on the overall condition of the toll road and current and future maintenance needs. [Infrastructure Development & Renewal: Midrange]
Adequate Debt Service: Fitch's projected debt service coverage ratio (DSCR) including proceeds from the MRG is 1.51x on average with a minimum of 1.35x. Leverage considering the Net-debt to-CFADS is approximately 7x, which Fitch believes is in line or with similarly rated toll roads.
Rating Sensitivities
A negative rating action on the notes could result from a negative rating action on the sovereign rating or significant delays in the payment of the MRG and/or failure to place the SBLC, resulting in pressure on project liquidity.
A positive rating action could result from a positive rating action on the sovereign.
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
In December 2013, Fitch placed AdN's rating on Watch Negative as a result of continued delays in the MRG payments and the failure to provide a letter of credit required under the concession agreement, which weakened the project's liquidity. A new government was elected to power in late 2012 with significant turnover in both positions of top leadership as well as day-to-day operations. According to AdN management, this turnover resulted in delays in receipt of payments due from the government. Delays of four to six months in payments in some cases resulted in the usage of liquidity reserves to meet debt service requirements for the October 2013 payment. The funds from the government were received shortly thereafter and all reserves were subsequently filled.
The most recently paid MRG was from the September to November 2013 period with the payment being received a much more manageable 74 days after billing. The currently pending payment was in collection 70 days as of May 20, 2014 and expected to be collected in mid-June. Both the issuer and government expect payments to be made within two to three months after billing.
Additionally, the transaction counts on an SBLC to provide liquidity should the trust experience delays in the receipt of the MRG payment. The letter of credit, approximately equivalent to three months of debt service, was not initially renewed for 2014. The Ministry of Finance of the Dominican Republic has authorized the issuance of the SBLC per a letter dated May 29 and it is expected to be in place by the end of June. The SBLC in combination with the DSRA and other fungible accounts within the transaction represent approximately 15 months of liquidity to pay debt service on a timely basis.
The notes capitalized interest through July 2008 with quarterly interest payments occurring over the next five years. Principal amortizations began in July 2013 and the current outstanding balance is USD174.4 million. The next quarterly payment is due July 15, 2014 for USD6.1 million.
The transaction benefits from a partial credit guarantee from MIGA which supports debt service payments should the government not comply with their obligations. The guarantee pays 51% of debt service not honored up to a maximum of 51% of the total principal balance. 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.
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' Oct. 16, 2013.
Applicable Criteria and Related Research:
Rating Criteria for Toll Roads, Bridges and Tunnels
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720736
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=833006
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