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19 Mar 2002
MOODY'S ASSIGNS (P)Baa2 RATING TO RUTAS DEL PACIFICO, S.A. TOLL ROAD REVENUE BONDS
Moody's Investor's Service has assigned a preliminary underlying rating of (P)Baa2 to the Rutas del Pacifico, S.A. (Santiago- Valparaiso - Vina del Mar) toll road project. Rutas del Pacifico plans to issue approximately 11 million Unidades de Fomento ("UF") equal to approximately US $ 300 million long term bonds in the local currency market. The bonds are expected to carry guarantees from the Inter-American Development Bank and FSA (both rated Aaa by Moody's).
Rutas del Pacifico, S.A. (the "Company") is a single purpose company owned 50% by ACS, Chile and 50% by Sacyr, Chile which are in turn subsidiaries of ACS and Sacyr respectively. In 1998 the Company obtained the concession to develop, construct and operate the Rutas del Pacifico toll roads from Chile's Ministry of Public Works (the "MOP"). The project consists of the 109 kilometer Ruta 68 connecting Santiago with the Port of Valparaiso and the Vina del Mar region, the new 20 kilometer Troncal Sur and 10 kilometers of Ruta 60 which connects Ruta 68 with Troncal Sur. The concession term officially began on August 10, 1999 and has a maximum term of 300 months.
The investment grade (P)Baa2 rating reflects a complex set of credit factors some of which are particularly relevant to toll road projects. Some of the key credit features are discussed in greater detail below. They include the strong alignment serving the two most densely populated and economically critical regions in the country, the manageable level of construction risk and the baseline protections afforded by the unique concession. The project combines improvements to a mature inter-urban toll road of considerable length with the construction of a new and shorter suburban by-pass road. Political support for the project and constructive working relationships between the Company and the MOP are important elements ensuring timely completion and optimal operations. The financing and legal structures provide standard bondholder protections including 1.4 times target debt service coverage ratios, waterfall and sponsor dividend limitations and adequate reserve fund requirements. Financial projections appear achievable; the level of traffic growth needed for break-even coverage is comfortably below that of historic growth rates. In the near term, in Moody's opinion, the critical issues are construction completion and acceptance, effective implementation of a new toll collection and management system designed to reduce toll-avoidance and leakage, and the importance of stable, dependable growth in the service area economies.
The Project Benefits From a Strong Alignment.
The location of the three project components - particularly the longer Ruta 68 - is excellent. At one end of the Ruta 68 alignment is the capital city Santiago with the nation's largest concentration of population (4.5 million). At the western terminus of the road is one of Chile's two major ports - the Port of Valparaiso - and the key vacation and tourist region of Vina del Mar. Additionally, the National Congress resides in Valparaiso. The strong service area reflects the concentration of the nation's population and employment in metropolitan Santiago and the adjacent Region 5. Metropolitan Santiago contributes approximately 39% of the nation's GDP.
With Santiago at the eastern terminus and Valparaiso-Vina del Mar at the western terminus, Ruta 68 will continue to provide essential transport services to this critical region. Troncal Sur is being built to parallel an existing local road connecting the cities of Quilpue, Villa Alemana and Penablanca with Vina del Mar. The existing free road is highly congested. Traffic flows are slow, interrupted by at-grade intersections and traffic lights and constrained by limited capacity.
Troncal Sur is designed to provide a higher speed, safer alternative connecting employment and economic activity in Vina del Mar with the residential areas of Quilpue, Villa Alemana and Penablanca.
The Project is an Improvement of an Existing Toll Road and the Construction of a Shorter Facility Important to the Long Term Development of the Region.
The project combines the proven revenue generating capacity of Ruta 68 with the future benefits of new toll paying customers on the Troncal Sur. The Ministry of Public Works has been collecting tolls at the two Ruta 68 mainline toll plazas: Zapata and Lo Prado since 1964 and 1972 respectively. Traffic levels and usage patterns on Ruta 68 are well-established, mitigating ramp-up risk. Average annual growth in traffic over the 16 year period from 1985 to 2000 at both mainline toll plazas has averaged 6.4%. This reflects the growth of private vehicle ownership from 1993 to 1999 of 6.7%. There are some free alternative roads along Ruta 68 but given the mountainous terrain along portions of the alignment and the reconfiguration of the toll collection system to thwart toll evaders, use of avoidance roads will become less attractive or feasible.
Upon completion in 2003, Troncal Sur will have two mainline toll plazas and one ramp collection barrier. Construction risk and ramp up risk associated with the new Troncal Sur is mitigated by the fact that toll revenues from the shorter by-pass Troncal Sur is expected to contribute a relatively smaller component of the total revenue stream (about 10%) for most of the first ten years of operations. In essence, the well-established Ruta 68 which is already an integral component of the greater Santiago transportation network will provide a comfortable cushion to the newer Troncal Sur. The project combines the benefits of a mature roadway with an established customer base with that of a start up toll road.
Construction Risk is Minimal.
Ruta 68 is in the advanced stages of construction process. Operating under a fixed price design build contract, the construction contractor is a single purpose company owned 50% by ACS, Chile and 50% by Sacyr, Chile. The parent companies are in the business of constructing and operating infrastructure assets worldwide. Sacyr, Chile was the second largest construction company in Chile in 2000. The design build contract contains some standard provisions regarding date certain completion, liquidated damages, insurance coverage, allocation of change-order and cost over-run risk. The contractor is providing a surety or letter of credit (LOC) contract guarantee equal to 20% of the work outstanding or a minimum of US$ 8 million. In addition to this LOC the sponsors are providing another LOC of approximately UD$7,5 million which will not be released until revenues reach projected levels. The contractor parent companies also are providing several but not joint guarantees (each 50%) of contractor performance as well as a 10 year latent defect guarantee. The contractor will cover all cost over-runs except for those caused by the Ministry of Public Works. The contractor will also cover the payment of all outstanding bonds if the concession is terminated due to contractor fault.
In addition to the protections embodied in the design build contract, the contractor has undertaken strategies to ensure timely construction progress. According to the due diligence report of the independent engineer, the aggregate project is over 70% complete as of November 2001. Some expropriations of land comprising the alignment were obtained earlier than scheduled due to the contractor's willingness to advance expropriation payments in anticipation of MOP reimbursements upon completion of due process. With the completion and operation of the two new tunnels on Ruta 68 on December 11, 2001, the contractor has surmounted the most technologically challenging components of the project thereby reducing construction risk significantly. As a result of the proactive management of project construction, the company anticipates earlier completion than required by the concession contract. Ruta 68 is expected to be completed by July 2002, five months ahead of the November, 2002 deadline. Furthermore, 83% of Ruta 68 was turned over in December, 2001. In exchange for the early turnover, the MOP has also agreed to share 82% of toll revenues collected on Ruta 68 up to November, 2002 at which time full operation will start and 100% of the tolls will comprise operating revenues.
Ministry of Public Works Support for the Project is Positive.
One of the earliest toll road concessions granted to the private sector in Chile, Rutas del Pacifico, S.A., benefits from its positive working relationship with the MOP. The Ministry views the project as providing a safer, more efficient service and key to the underlying health of the greater Santiago and Region 5 economy. Both the project sponsors and the MOP have demonstrated their willingness to support the project in several important ways. Change orders providing safety, environmental and service enhancements totaling over US$ 30 million requested by the MOP have been identified and agreed to between the MOP and Rutas del Pacifico, S.A. in supplemental agreement No. 3. By identifying a comprehensive list of supplemental works (equal to approximately 10% of the project cost) and negotiating implementation strategies, the MOP and project sponsors are able to contain cost over-runs. Another example of the cooperative relationship between the Ministry and the Company is the willingness to share 82% of toll revenues collected by the MOP between November, 2001 and November, 2002 in recognition of the benefits of the 80% advance turnover of Ruta 68. The MOP has agreed to approve annual toll increases by the CPI.
A unique element of the Rutas del Pacifico, S.A., concession is the Ingresos Total de la Concession (the "ITC"). The ITC is a pre-determined amount of revenues that can accrue to the Company. The maximum term of the concession is either 300 months or the date by which the ITC is reached, whichever is shorter. Once the ITC is reached, the concession terminates. The Convenio Complementario Nº2 grants an amount of US$ 8 million in ITC as compensation for additional project work undertaken by the Company and extends the Concession Term correspondingly. To the extent that operating results are better than anticipated, the concession term is proportionately shortened. Despite the limitation on the Company's revenue upside, the project sponsors and the Ministry recognize the importance of the project and have demonstrated their continued support of the concession.
The Financing Structure Provides Sufficient Bondholder Protections.
The financing structure accommodates the ITC by assuming a final maturity of 2024 and principal amortization beginning in 2004. If operating cashflows are better than projected, the financing structure provides for earlier principal maturities through deposits to the Mandatory
Anticipated Prepayment Account. Some standard protections include capitalized interest to 2003 and target debt service coverage ratios of 1.4 times debt service requirements. Furthermore, before any dividend payments can be made to project sponsors, debt service coverage must equal or exceed 1.3 times. Reserves include a 12-month debt service reserve fund in the form of a standby LOC which will be gradually replaced by excess project cashflows. There is also a Major Maintenance Reserve Account to be funded over multiple years to meet scheduled maintenance requirements. If the debt service coverage ratios fall below 1.3 times, or the Loan Life Coverage Ratio falls below 1.4 times, excess cashflows are trapped in a Cash Collateral Reserve Account (the "CCRA") until one year's debt service amount is funded. The maximum held in the CCRA is 12 month's debt service requirement. No monies are released from the CCRA until a 7 year look-ahead indicates a 1.2 times coverage factor. Cashflow waterfalls are standard.
Financial Projections Appear to be Reasonable.
Historic traffic growth rates on Ruta 68 have averaged 6% at the Lo Prado and Zapata toll plazas over the 16 year period from 1985 to 2000. The traffic consultants project growth in traffic to mirror growth in GDP, with the base case assuming a 5% growth factor for the period of 2003-2024. This compares favorably to the historic average annual growth in the metropolitan region GDP of 8.2% between 1986 and 1997. Furthermore, break-even analyses indicate that a growth rate just under 1% would still provide sufficient coverage of debt service payments and maintenance of mandatory reserves. This provides some margin of flexibility in the event that traffic growth rates fall short of projections temporarily. The key to reaching revenue targets is the successful implementation of the new closed system of toll collections. By collecting tolls in both directions at both the Lo Prado and Zapata mainline toll plazas as well as new one-way barrier tolls at Zapata Poniente, Algarrobo, Casablanca, Quintay and Tapihue on Ruta 68, as well as at the two mainline and one barrier toll plazas on Troncal Sur, the Company should be able to stop or reduce toll evasion and collection inefficiencies and thus ensure higher levels of toll revenues even though the beginning tolls will be roughly equal to pre-concession fares. The concession also allows the Company to collect three different levels of tolls based on congestion.
As a Well-Established Component of the Regional Transportation Network, Rutas del Pacifico is Expected to Maintain its Market Position.
When the project is completed, Ruta 68 will provide a straighter alignment, higher driving speeds and the most efficient and safe linkage between Santiago and Valparaiso - Vina del Mar. Given the mountainous terrain, the well-established usage of the route and the fact that tolls have been collected along Ruta 68 for some 40 years, it is unlikely that service area driving habits will change over the long run. Current competing alternatives are limited. The almost parallel Autopista del Sol is also a toll road and serves as the link between Santiago and the Port of San Antonio to the south of the Rutas del Pacifico, S.A., alignment. Future competing alternatives are also unlikely given the hurdles of high construction costs and limited federal funding. Discussion regarding construction of rail or other fixed guideway alternatives are also unlikely in the near to medium term. Generally, rail transit face substantial political and financial hurdles due to the high cost of rail infrastructure and rolling stock and the resulting need to provide operating subsidies.
Construction Completion and Toll Collection Ramp Up are Important Credit Factors.
While Ruta 68 is substantially complete in terms of the "hard" construction elements, Troncal Sur remains in the midst of heavy construction and is just over 60% complete. Moody's expects Rutas del Pacifico, S.A., management to continue to aggressively control construction progress working cooperatively with MOP on-site representatives and checking engineers monitoring construction costs and scheduling progress on behalf of the project guarantors. Post completion it will be critical to implement the new toll collection system effectively to prevent toll evasion and harvest maximum revenues. The new toll collection system will initially engender some customer inconvenience due to the need to stop at both mainline plazas as well as barrier ramps depending on the length of the trip. On the positive side, the total toll paid will not be substantially different from the toll regime pre-concession. If the new toll collection system is effective in harvesting higher toll revenues at the same levels of traffic, this will alleviate dependence on future traffic growth.
No Related Data.
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