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Rating Action:

Moody's Investors Service downgrades to B2 from Ba3 the rating on Inversiones Alsacia and places the rating on review for further downgrade

Global Credit Research - 16 Aug 2013

Rating action affects approximately US $405 million of debt outstanding

Mexico, 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.

RATINGS RATIONALE

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.

REGULATORY DISCLOSURES

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 review.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com.mx for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com.mx for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com.mx for further information.

Please see www.moodys.com.mx for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

The ratings issued by Moody's de Mexico are opinions regarding the credit quality of securities and/or their issuers and not a recommendation to invest in any such security and/or issuer.

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
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Chee Mee Hu
MD - Project Finance
Project Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Moody's Investors Service downgrades to B2 from Ba3 the rating on Inversiones Alsacia and places the rating on review for further downgrade
No Related Data.

 

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