New York, February 07, 2011 -- Moody's Investors Service has assigned a first time provisional
(P) Ba2 rating to the Senior Secured Notes of Inversiones Alsacia S.A.
("Alsacia") due August 2018, to be issued in the amount
of $464 million. The rating on the notes carries a stable
outlook. The notes are being issued under Rule 144A of the Securities
Act in the U.S. and pursuant to Regulation S outside the
United States. Inversiones Alsacia S.A., and
its affiliate Express Uno de Santiago S.A. ("Express")
are Chilean corporations which hold concessions for bus rapid transit
trunk lines in the City of Santiago, Chile.
Proceeds from the Notes will be used by Inversiones Alsacia S.A.
to retire its existing debt, and after a series of changes to the
ownership structure, to purchase the remaining ownership in Express
de Santiago Uno S.A. and retire its debt, including
breakage costs for current swap agreements. The remaining proceeds
will be used to fill a portion of the debt service reserve and fully fund
the dedicated overhaul account. The Notes will initially be sold
by BRT Escrow Corporation SpA ("BRT"), a special purpose
company established solely to issue the Notes. Once the transactions
that will result in the full ownership of Express de Santiago Uno S.A.
("Express") by Alsacia's holding company GPS Group (incorporated
in Panama) are complete, BRT will be acquired by Alsacia and the
Notes will become senior secured debt of the latter.
Interest and principal on the notes will be payable semi-annually
in February and August from concession related revenues received by Alsacia
and Express for the provision of rapid transit bus service in Santiago.
Collateral on the notes includes the concession rights under the operating
agreements, including all economic rights, the shares of Alsacia
and Express, all buses and terminals owned by the concessionaires
with the exception of one which is carved out and pledged to Banco Internacional
as collateral on a loan, as well as the main transaction accounts
and insurance proceeds not required by the concession to be granted to
third parties, among others. The notes are also unconditionally
guaranteed by Express, and the two holding companies of Express,
which will be Panamerican Investment Ltd. (Bermuda), and
Inversiones Eco Uno S.A. (Chile), collectively referred
to as the guarantors.
Rating Rationale
The (P) Ba2 rating reflects the well-developed and mature concession
framework in Chile and the strength of the off-taker, which
is the Ministry of Transportation and Telecommunication (MTT) of the Government
of Chile (rated Aa3/Stable outlook). However. this strength
is somewhat tempered by the fact that this concession is the only one
of its kind and does not have the tenure and history of other types of
infrastructure concessions in the country. An important factor
in considering the strength of the sovereign offtaker is the fact that
the subsidy of the system is only guaranteed in legislation through 2014.
Moody's expects that the Government of Chile has both the willingness
and ability to continue to support the system, at least until the
termination of the concession agreements. The rating also incorporates
the nature of the revenue formula by which Transantiago calculates the
concessionaires' earned revenue, which protects revenue fluctuation
within a band that ensures a certain level of stability in the companies'
revenues. The projected debt service coverage ratios appear to
be fairly resilient to singular shock events in ridership and scenarios
of cost increases.
Each concessionaire works under a separate concession agreement between
it and the MTT to provide defined trunk line services under the Transantiago
urban transit system. Alsacia has the concession for Trunk Line
1 and Express has the concession for Trunk Line 4. The concession
for Trunk Line 3 was recently terminated by the Chilean Government and
each of Alsacia and Express now have a portion of that route package.
The concession agreements with the MTT have been in effect since 2003
and expire in October 2018.
The Transantiago system incorporates the Bus Rapid Transit (BRT) and the
city's metro systems. The BRT became fully operational in
its current form in February 2007. The concessionaires are paid
bi-monthly according to a formula set by the MTT in the concession
agreement that takes into consideration factors of inflation and shifts
in the cost of fuel, labor, and other inputs, as well
as the exchange rate of the Chilean peso to the U.S. dollar.
The formula comprises a fixed revenue portion established at the beginning
of the concession, and a variable revenue portion which in addition
to the above inputs takes into consideration the passenger demand,
the number of kilometers traveled by the buses and the number of places
made available to users. One of the most important aspects of the
revenue formula is the service fulfillment ratio, or ICPKH as per
the abbreviation in Spanish, as it measures the performance of the
concessionaires' operations compared to a predetermined schedule
that is agreed with Transantiago for each month. The ICPKH is multiplied
against the revenue result directly so that, for example,
a lower service fulfillment ratio results in a direct effect on the entire
amount a concessionaire receives. The ICPKH for Alsacia over the
last year has been in the range of 97%, where that of Express
has fallen to around 94% which is lower than its historical trend.
After the purchase of Express by the holding company of Alsacia,
the company expects to increase the ICPKH to similar levels as well as
to achieve some cost synergies.
The payment mechanism under Transantiago consists of a consolidated revenue
collection system under the control of the Transantiago Funds Administration
(AFT). The AFT is a consortium of banks that was set up to serve
as a clearing house for all of the revenues generated by Transantiago
and owed to all concessionaires, including the bus and metro operators.
Under specific agreements with each of the concessionaires, the
AFT is responsible for the sale of the fare cards and for the collection
of all of the ridership revenue, which goes directly to AFT.
The AFT also receives a national government subsidy, as the revenues
from the system provide only about 50% of the total revenues required
by the system to meet the payment requirements of all of the concessionaires
and the metro.
The national subsidy is established under a 2009 law and together with
additional amounts that have been approved over the last year, provide
for the national government to pay roughly $1.8 billion
in the years spanning 2011-2014. Despite the fact that the
current subsidy will expire in 2014, at which point 62% of
the original debt will be outstanding, Moody's is confident
that the Government of Chile will continue to support the system given
public policy considerations including the importance of the mass transit
system to the mobility of the Santiago metro area and its economy.
Our opinion is also formed in the context of the country's proven
commitment to follow through on concession programs, and finally
on its ability to continue funding the system given that the annual amounts
provided to the AFT from 2010-2014 do not surpass .01%
of GDP.
One credit weakness is that the concessionaires have no discretion in
setting the fees charged for service. The aforementioned subsidy
law established a panel of independent experts which is responsible for
determining the passenger fare, taking into account the government
support that is currently in place. If in the future this support
were to be more limited or disappear, the panel is charged with
setting a fare that would support the system at the same level.
Recent rate increases amounting to a 30% rise in fares implemented
in 2009, 2010, and January of 2011 have not, in and
of themselves, had a direct negative effect on the ridership for
the Alsacia and Express trunk line services. However, the
possible effects of very large hikes in fares on ridership is difficult
to determine given on the one hand, the relatively limited history
of the concessions and the limited options for commuting in the city on
the other.
Over the medium and long-term, the Transantiago Metro presents
the most important competitive threat to the financial health of Alsacia
and Express. Certain metro lines were extended in 2010 and several
others are scheduled to open in the current and next year. Alsacia
has estimated that it and Express will lose an additional 5.1.%
and 13% of passengers to these improvements to the metro.
As compensation, both concessions have received a portion of the
services for trunk line 3, as mentioned above. Under the
concession agreements, the effects of the additional service are
reassessed at the end of the year to analyze if the compensation was adequate
for the maintenance of economic equilibrium. Moody's expects
that the national government will honor the principal of economic equilibrium
under the concession agreements going forward, but will monitor
the compensation to the concessionaires compared to the effect on their
operations, as there is a very limited history of such compensation
arrangements given the relatively short existence of the system.
The capital structure includes the proceeds from the bonds as well as
$12 million from a loan with Banco Internacional de Chile,
which has a senior lien on one of the bus terminals owned currently by
Alsacia. Principal on the loan is due after the Notes are fully
retired but may get prepaid subject to available cash in a position junior
to the Notes.. The project waterfall is relatively straightforward,
with the exception that interest on the Banco Internacional loan is paid
prior to the payment of debt service on the notes, and although
we note that this priority of payment is uncommon and in line with the
subordinate lien on the loan, we also highlight that its effect
on the debt service coverage on the Notes is actually negligible due to
the relatively small amount it represents.
The Notes' debt service reserve requirement is the maximum of the
next two semi-annual debt service payments, though it will
not be fully funded at closing and will be filled with the cash flows
through the waterfall, after the payment of debt service on the
notes. The project also includes an overhaul reserve account funded
at six months of projected bus overhaul costs.
The issuer will enter into a foreign currency swap agreements with a subsidiary
of Bank of America Merrill Lynch (MLCP) and potentially with a another
international similar rated financial institution at its option,
under which the foreign currency exchange rate will be initially protected
within a band of 570 CLP and 750 CLP, with some narrowing of that
band through 2018. The swap counterparty will always cover the
portion of debt that falls within the band, and in the event that
the exchange rate goes over the cap, the issuer would be responsible
for that portion that is over and above that exchange rate. Moody's
believes this type of swap provides an adequate amount of protection given
the relative stability of the Chilean peso over the last 10 years,
though we acknowledge that it leaves the issuer exposed at the tails of
the foreign currency forward curve.
Moody's base case takes into account the full exposure of the foreign
currency rate up to the low end of the protection band (or the strike
rate), an ICPKH of the average for each of the concessionaires for
the last year, and passenger growth ranging from 1.5%
annually and decreasing to 0.5%. The revenue formula
provides a natural protection to debt service given that it takes into
account increases in prices of essential inputs, such as labor and
fuel, as well as the exchange rate of the peso to the U.S.
dollar. Hence at this rating category, the transaction can
withstand debt service coverage ratios that are more in line with those
of higher rated availability based public-private partnership projects
that do not have demand risk.
The average debt service coverage ratio (DSCR) for the proposed financing
structure is adequate at 1.20x.. The transaction
provides for a cash trap mechanism if the DSCR is under 1.25x and
a partial cash trap if it falls between 1.25x and 1.35x.
If we include the funds which would be trapped in the transaction,
and assume that the project is generating revenues to that level,
the average DSCR with all funds available for debt service increases to
1.41x. The Ba2 rating is however based on the coverage by
net revenues, the limitations imposed by the concession agreements,
the transaction structure, and the fundamentals of the project.
Outlook
The stable outlook reflects Moody's expectation that both Alsacia
and Express will continue to operate at least at the current levels of
service which will in turn affect their revenue, and implement cost-saving
synergies related to the effective consolidation of the two companies
after the transaction closes. We expect that the average and minimum
DSCRs will remain in line with projections. The stable outlook
also incorporates the expectation that the concessionaires will be compensated
adequately by the MTT, if the future lines of the Santiago Metro
affect the concessionaires over and above the threshold agreed upon in
the concession agreements.
What Could Change the Rating -- UP
The rating is well placed in its rating category and unlikely to increase
in the near to medium term. However, it could experience
upward pressure if there was a significant increase in the fares and ridership
that allowed the system to become increasingly self-sustaining
and resulted in consistently higher than anticipated debt service coverage
levels.
What Could Change the Rating -- DOWN
The rating could experience negative pressure if either Alsacia or Express,
or both, experienced consistently lower than anticipated service
fulfillment ratios causing declines in revenues. We expect that
consistently lower service fulfillment ratios would signal problematic
operating issues such as a failure to maintain the bus assets properly
and hence generate sufficient revenues to meet debt service payments at
a level that is consistent with the currently assigned rating.
The principal methodology used in this rating was Generic Project Finance
Methodology published in December 2010.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not 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.
However, the credit rating action was based on limited historical
data.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit 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 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
and accurate data may not be available. Consequently, Moody's
Investors Service 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
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Laura Barrientos
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Chee Mee Hu
MD - Project Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assignes first time (P)Ba2 rating to the $464 million of notes of Inversiones Alsacia S.A., being issued through BRT Escrow Corporation SpA
