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Global Credit Research - 16 Aug 2013
Rating action affects approximately US $405 million of debt outstanding
NOTE: On December 12, 2014, the press release was revised as follows: in the REGULATORY DISCLOSURES section, removed Quality of Information, MIS Ratings Definitions, Rating History and Ratings Opinion and Disclaimer Regarding Liability regulatory disclosure items; corrected releasing office information to Moody's Investors Service, Inc. from Moody's de Mexico S.A. de C.V. Revised release follows.
New York, August 16, 2013 -- Moody's Investors Service has downgraded the rating on Inversiones Alsacia
to B2 from Ba3. At the same time, the rating is placed on
review for further downgrade. The downgrade reflects the project's
poor financial performance and increased instability as evidenced by:
a) failure to maintain a minimum Debt Service Coverage Ratio of 1.1x
, which could trigger Early Amortization, b) failure to meet
the required balance on the O&M account , which could trigger
an Event of Default, and c) draws on the debt service reserve fund
which has left the account underfunded, increasingly exposing the
transaction to a potential default. The issuer is seeking a waiver
from bondholders on the breached covenants, which is expected to
be obtained in the next few days. The review for downgrade will
focus on the ability of Alsacia to successfully obtain this waiver and
on updated cashflow projections over the next six months. The rating
review will be concluded expeditiously.
The downgrade reflects a weaker credit quality of Inversiones Alsacia
stemming from a significantly lower than expected cash flow generation
net of costs. Increased revenue volatility as a consequence of
the 2012 concession amendment, decreased bus passenger demand,
and significantly larger than projected maintenance and overhaul costs
led to the deterioration of Alsacia's key credit metrics and liquidity.
The poor performance caused Alsacia to breach two of its Indenture covenants.
First, Alsacia failed to maintain a minimum Debt Service Coverage
Ratio (DSCR) of 1.1x for the six-month period ended July
31, which constitutes an Early Amortization Event. This gives
the bondholders the right to trigger an Early Amortization Period,
during which on every scheduled debt service payment date the remaining
cash flows after the coupon payment are used to pay down debt.
In addition, the issuer has not maintained balances in the O&M
accounts equal to the full amounts required by the Indenture (two transfer
periods, or approximately one month of O&M), which also
gives the bondholders the right to trigger an Event of Default.
As of today, Moody's understands that no Early Amortization
Period or Event of Default have been triggered by the bondholders.
The issuer is seeking a waiver from bondholders of the applicability of
an Early Amortization event for failure to maintain a 1.1x DSCR
for reporting periods ending on January 31st, 2015 and for any Events
of Default associated with not funding the O&M account through August
16, 2016. The waiver is expected within the next weeks.
Alsacia is relying on the Debt Service Reserve Account (DSRA) and compensations
from the Government of Chile (Aa3/Stable)- through the Ministry
of Transportation and Telecommunications (MTT)- to help make debt
service payments. On February 18, 2013, the issuer
made the semi-annual debt service payment of US$47 million,
requiring draws from the DSRA in the amount of approximately US 14 million.
For the next coupon payment, due August 18, 2013, Alsacia
will need to withdraw roughly US 9 million on the already underfunded
DSRA, leaving in the account balance at approximately US 10 million,
well below the target of US 50 million.
In order to meet the coupon payment due on February 2014 of US 50 million,
Alsacia will likely rely on the compensation payment of US 15 million
from the MTT, which is scheduled for the end of January 2014.
This compensation for the amendment of the original concession contract
is subject to operational improvement, among other conditions.
If the conditions are not met the compensation could be delayed exposing
Alsacia to a default, especially if the cash flows generated over
the next six months continue to be lower than expected and given the low
balance of the DSRA.
Moody's does not expect upward pressure on the ratings in the near term.
Notwithstanding the review could conclude with the confirmation of the
rating if Inversiones Alsacia successfully obtains the waiver from bondholders
and the financial metrics are in line with the assigned rating.
If the waiver is not obtained as expected or Moody's expects that
the poor performance will continue in the near to medium term, the
review could conclude with a further downgrade.
The principal methodology used in this rating was Generic Project Finance
Methodology published in December 2010. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
Please see www.moodys.com for any updates on changes
to the lead rating analyst and to the Moody's legal entity that has issued
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Adrian Javier Garza
Asst Vice President - Analyst
Project Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Chee Mee Hu
MD - Project Finance
Project Finance Group
Moody's Investors Service downgrades to B2 from Ba3 the rating on Inversiones Alsacia and places the rating on review for further downgrade
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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