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Global Credit Research - 10 Mar 2011
London, 10 March 2011 -- Moody's Investors Service has today affirmed the Ba2 corporate family
rating (CFR) and probability of default rating (PDR) of Obrascon Huarte
Lain S.A. (OHL), as well as its existing senior unsecured
instrument ratings. At the same time, Moody's has assigned
a provisional (P) Ba2/LGD3 rating to the proposed new EUR500 million senior
unsecured notes. A definitive rating will be assigned to the notes
upon review of final documentation and completion of the transaction.
Outlook on the ratings remains negative.
The proposed bond issuance will be used to refinance OHL's EUR422
million bond due in 2012, thereby improving its debt maturity profile.
The provisional (P)Ba2/LGD3 instrument ratings for the proposed senior
notes (due 2018 according to indicative exchange terms) reflect their
senior unsecured status and pari passu ranking with a large majority of
OHL's existing and future obligations.
Moody's recognises that OHL has managed to address a number of concerns
embedded in the negative outlook, achieving sales of EUR4.9
billion and EBITDA of EUR1 billion for 2010 and significant year-on-year
growth in operating margins, EBITDA and EBIT. The main growth
driver was the group's concession business, which at EUR1.5
billion sales and EUR747 million EBITDA, reported growth of 32.1%
and 71.3% over the prior year. International construction
activity became the leading segment in terms of sales, accounting
for 37% of the total.
However, OHL's recourse business has weakened and remains
under stress in the current economic environment. Domestic construction
activity saw a 23% reduction in sales and a 30% drop at
the EBITDA level, driven by lower activity levels due to the substantial
cuts in government spending, while international construction activity
remained flat in terms of revenues, in line with Moody's expectations.
Overall, the construction business showed a drop in sales of 10.4%.
Going forward, Moody's expects that the decline in domestic
construction will be offset by a growing international recourse business,
which presented a y-o-y increase of 24% in its order
OHL reported higher than expected recourse debt of EUR1.17 billion
as at 31 December 2010 up from EUR731 million as at end-2009,
resulting in a reported recourse debt/recourse EBITDA ratio of 3.5x.
The increase was due to (i) investments in concession companies,
(ii) working capital fluctuations due to the reduction in commercial financing
as a consequence of the drop of the domestic construction activity and
(iii) delayed payments by some international customers. Nevertheless,
the company expects to reduce recourse debt in the coming months,
through the sale of non-core assets and an improvement in collections.
Net reported debt/EBITDA stood at 4.4x, improving from 4.6x
reported last as of end-2009.
The Ba2 CFR continues to take into account OHL's (i) portfolio of businesses,
through which it balances cyclical construction activities with more predictable
concession-generated revenues; and (ii) its gradually decreasing
exposure to the Spanish economy, with its involvement in international
construction projects and a growing portfolio of Latin American infrastructure
assets. At the same time, the rating factors in: (i)
the potential for volatility in the cyclical construction industry;
and (ii) the challenges OHL faces in controlling its expanding international
activities. The outlook remains negative given the significant
decline in domestic construction activity during 2010 and higher than
expected recourse debt as at December.
Upward pressure on the rating could develop if net consolidated debt/EBITDA
(as adjusted by Moody's) falls well below 5x and gross recourse
debt/recourse EBITDA (as reported by OHL) moves to below 3.5x on
a sustained basis.
The Ba2 rating could come under pressure if OHL's net consolidated
debt/EBITDA ratio (as adjusted by Moody's) increases above 5.5x
and the company's gross recourse debt/recourse EBITDA ratio (as
reported by OHL) rises above 4.0x on a sustained basis.
Moody's previous rating action on OHL was implemented on 21 September
2010, when the company's CFR, PDR and senior unsecured
ratings were downgraded to Ba2 from Ba1 with a negative outlook.
The principal methodologies used in this rating were "Global Construction
Methodology", published in November 2010 and "Loss Given
Default for Speculative-Grade Non-Financial Companies in
the U.S., Canada and EMEA", published
in June 2009.
Headquartered in Madrid, OHL is one of Spain's leading construction
and concession operators, involved in environmental, development
and industrial activities. For 2010, OHL reported sales of
EUR4.9 billion and EBITDA of EUR1 billion.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
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Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
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independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
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Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
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Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
Moody's affirms OHL's CFR and assigns (P) Ba2 to new senior notes; outlook negative
One Canada Square
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