NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded Lima Airport Partner's S.R.L. (LAP) $164.8 million fixed-rate notes due 2022 to 'BBB' from 'BBB-'. The Rating Outlook is Stable.
The rating upgrade reflects the strength of the transaction's underlying airport asset and its ability to generate sufficient cash flow to support debt obligations. Strong demographic fundamentals, connectivity to main South American economic centers, and limited viable competition make the airport an attractive and strategic hub. In 2010, the Jorge Chavez International Airport (JCIA), received over 90% of Peru's total international air traffic and serviced above 75% of total air traffic to the country. The rating upgrade also reflects the ring-fenced financing structure, which isolates the asset from the operator's solvency, and early termination risks.
The Stable Outlook captures the sustained growth in both passenger traffic and cargo volumes which have considerably surpassed previous assumed projections. Fitch expects traffic and cargo growth to continue the positive tendency going forward, allowing the project to achieve favorable margins. Under acute stress scenarios, it is Fitch's view that a modest growth in traffic is needed to fully service the $164.8 million senior notes, including the implementation of future capital outlays as stipulated by the Concession Agreement.
Historically, the airport has significantly outperformed its traffic growth projections, with a compound annual growth rate (CAGR) of 14% from 2006 to 2010, representing one of the highest growth rates for airports in the world. In 2010, the airport continued to post positive traffic trends, in line with the country's economic performance. Traffic in 2010 increased 17% to 10.2 million passengers from 2009. Meanwhile, gross revenue grew 13% over previous year. Although, JCIA's passenger mix is approximately 45/55 international / domestic, excluding transfer and transit passengers, international passengers (who are charged higher tariffs) increased 6.5% in 2010; while domestic traffic grew by 29% and cargo by 17%.
In 2010, international traffic growth was mainly driven by the Unites States with the largest share of visitors to Peru (24%), then by Chile (11%), Colombia (11%) and Spain (10%). In sum, South America represented 48% and North America 28% of international traffic. A sustained contribution by countries like Spain and Colombia was observed in 2010, as they recently doubled participation in 2009. Other positive attributes include capital plans by LAN Airlines, the airport's largest airliner. LAN's market strategy is expected to increase capacity and frequencies at JCIA in 2011. LAN's increased coverage at Lima Airport parallels the continued economic growth of Peru and its solid fundamentals when compared with other regional airports. Domestic traffic growth is underpinned by the increasing activity of low-cost carriers, facilitating local demand to access air transportation.
The regulatory framework, including the price cap formula (RPI-X), was revised twice during 2009. The initial 0.53% X-factor, or productivity factor, set by the Public Transportation Regulator for Infrastructure Investments (OSITRAN) on Dec. 30, 2008 for the period January 2009-December 2013, was adjusted in March of 2009 to -0.49%.
Such modification was part of the tariff review process and intended to reflect a miscalculation of the input index price. In December 2009, OSITRAN published a revised productivity factor that addressed some of LAP's appealed analytical differences at -0.61%. The tariff calculated with this X-factor has been in place since Jan. 16, 2010. For the period between March 7, 2009 and Jan. 16, 2010, the tariff was calculated by subtracting only -0.49% from the U.S. Retail Price Index. Fitch opines that this first tariff review process reveals the application of the predetermined methodology for future revisions and believes the possibility of further modifications before 2013 is remote.
LAP's revised three-year capital plan includes the resurfacing in 2011 of the existing runway, as well as the initial investment for the second runway build-out assuming the Government delivers the land before February 2013. Fitch views positively the lower level of additional senior debt needed to finance such investments and considers the cash available for debt service is sufficient to cover all obligations.
Fitch's analysis includes various sensitivity scenarios to assess the project's ability to withstand significant stresses. Among others, it incorporates important economic factors affecting the ability to repay debt, including: revenue derived from traffic volume, cargo, tariffs; all required capital expenditures; the ability to issue additional senior debt and release dividends starting in 2010. The applied scenarios are commensurate with the rating upgrade, reflecting LAP's ability to maintain a positive operating performance under challenging circumstances.
The JCIA Concession was granted by the Ministry of Transportation, Communications, Housing and Construction (MTC) of the Peruvian Government which expires in 2031, nine years after the expected repayment of the rated notes, and with an automatic right of renewal for additional 10 years.
The fixed-rate notes were issued by LAP under a 15-year tenure, and nine years before Concession's expiration date. The bonds are secured by revenues collected on Lima Airport pursuant to the concession.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--Rating Criteria for Infrastructure and Project Finance (Aug. 13 2010)
--Rating Criteria for Airports (Nov. 29, 2010)
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345
Rating Criteria for Airports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=578745
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