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Rating Action:

MOODY'S DOWNGRADES ENA TO Ba2 FROM A2, AUDASA TO Ba1 FROM A2 AND AUCALSA TO N-P FROM P-2; MAINTAINS REVIEW, DIRECTION UNCERTAIN

16 Jul 2003
MOODY'S DOWNGRADES ENA TO Ba2 FROM A2, AUDASA TO Ba1 FROM A2 AND AUCALSA TO N-P FROM P-2; MAINTAINS REVIEW, DIRECTION UNCERTAIN

Ba1 Senior Implied Rating Assigned to ENA

London, 16 July 2003 -- Moody's Investors Service today downgraded the long term-issuer rating of Empresa Nacional de Autopistas, S.A. ("ENA") to Ba2 from A2, the senior unsecured rating of Autopistas del Atlantico C.E.S.A. ("AUDASA") to Ba1 from A2, and the short-term issuer rating of Autopista Concesionaria Astur-Leonesa, S.A. ("AUCALSA") to Not-Prime from Prime-2. AUDASA and AUCALSA are toll motorway concession companies within the ENA group. Moody's also assigned a senior implied rating of Ba1 to ENA. All ratings remain on review, direction uncertain.

The ratings were maintained on review for possible downgrade on 14 March 2003, when they were previously downgraded, in response to the announcement in November 2002 by Aaa-rated Sociedad Estatal de Participaciones, the Spanish government's wholly owned public law entity, that a formal privatisation process had commenced.

Given that the sale of the ENA group has a very high probability of completion by October 2003, the new rating levels now more closely reflect the fundamental credit quality of the ENA group post-privatisation. Moody's has assigned a Ba1 senior implied rating to ENA reflecting: (1) the imminent sale of 100% of ENA, and its wholly owned subsidiaries AUDASA and AUCALSA, to a consortium of investors (the "Consortium") led by the Spanish construction and concession company Sacyr Vallehermoso S.A. (unrated), (2) the significant debt burden of the ENA group, (3) the additional debt that will be raised by the Consortium to finance the purchase of the ENA group, which will need to be supported by ENA and its wholly owned subsidiaries, and (4) the liquidity facilities likely to be available to AUDASA and AUCALSA and other group companies following the completion of the acquisition.

All of the ENA group debt is provided to toll road subsidiaries of ENA, and most of it to AUDASA and AUCALSA. However, ENA is a holding company and relies on dividend flows from its operating subsidiaries. Consequently, Moody's has made a rating distinction between ENA and AUDASA reflecting the structural subordination of ENA. AUDASA's Ba1 rating reflects the fact that all the ENA group debt is located at the operating company level. However, ENA's issuer rating is downgraded to Ba2 reflecting its structurally subordinated status.

Given that the terms and financial structure of the Consortium's acquisition are not yet finalised, all ratings have been maintained on review pending resolution of all outstanding issues. The rating direction is uncertain and reflects the fact that the final terms of the financing may impact one or more ratings either positively or negatively.

Moody's ongoing review will encompass an assessment of (1) the detailed terms of the acquisition financing and its remoteness from the ENA group, (2) the terms and conditions on which the liquidity facility is made available to the ENA group, (3) the support provided to ENA group companies by the legal and regulatory framework within which they operate, and (4) specific contractual and legal restrictions on payment of dividends.

The Ba1 Senior Implied Rating reflects the fact that the ENA purchase price of EUR1.586 billion is to be financed predominantly by debt with a holding company structure sitting above ENA. This will reduce ENA's financial flexibility further as cash flow will need to be up-streamed through dividends to service this significant debt burden. Given the high existing debt burden already being supported by the ENA operating subsidiaries, Moody's does not view this capital structure as consistent with an investment grade credit rating.

The ENA group already has a significant amount of debt (EUR1.1 billion as at 31 December 2002). While ENA and its subsidiaries have generated steady cash flow over the last few years, the existing debt which has been taken on to build the road network is significant and creates material debt service obligations. Furthermore, 2003 will see further capital expenditure to meet the final construction of AUDASA's A9 motorway, and the payment of the 2002 extraordinary dividend of EUR88.1 million to SEPI, although AUDASA's recent EUR193 million bond issue should meet these requirements. The ENA group is expected to be cash flow positive before dividend payments from 2004. Nevertheless, the group's current debt burden constrains the ratings, although the terms on which cash may be retained by the ENA group irrespective of the needs of ENA's owners may mitigate this debt burden. Furthermore, to the extent that they are not contractually restricted, any possible future mergers between ENA and what will be its holding companies would have a downwards impact on the ratings of ENA and its subsidiaries.

However, ENA's debt leverage will be somewhat alleviated by the provision of a committed bank facility which will be sized to cover the liquidity needs of ENA's subsidiaries over the next 18-24 months, including debt maturities and any debt obligations that become due earlier by virtue of ENA's change of ownership. Moody's notes also that the terms of the Liquidity Facility are yet to be finalised.

AUDASA and AUCALSA operate toll roads under concession agreements and within a defined legal framework. The legal framework places obligations and restrictions on AUDASA and AUCALSA, and provides for a level of Government supervision that has elements of a regulatory framework, which provides some support for the ratings.

The sale of ENA and its subsidiaries to the Consortium, will remove the last elements of Government support implied in the current ratings of ENA, AUDASA and AUCALSA. In addition, it is now apparent that the debt burden of the ENA group will need to be supported solely by the cash flow of the ENA group and the liquidity support available to it. Consequently the significant downward move in the ratings reflects the fundamental credit quality of the ENA group on a stand-alone basis.

The ENA group has the following ratings outstanding:

ENA:-

Senior Implied Rating - Ba1

Issuer Rating - Ba2

AUDASA:-

JPY20 billion 3.6% Bonds due 2006 - Ba1

EUR30.05 million 5.0% bonds due 2007 - Ba1

EUR72.12 million 3.9% bonds due 2008 - Ba1

EUR66.11 million 4.19% bonds due 2011 - Ba1

EUR180.30 million 4.33% bonds due 2012 - Ba1

AUCALSA:-

Short-Term Rating - Not-Prime

AUDASA and AUCALSA are both toll motorway concession companies within the ENA group of companies. AUDASA's concession is for the A-9 motorway from El Ferrol to Tuy in the Galicia region of Spain; AUCALSA's concession is for the A-66 motorway between León in Castilla-León and Campomanes in Asturias. ENA's total operating income in the year ended 31 December 2002 was EUR157.4 million.

London
Stuart Lawton
Managing Director
CFG
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454

London
Richard Sanders
Analyst
CFG
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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