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Rating Action:

Moody's assigns Aaa.br issuer rating to AutoBAn; outlook stable

 The document has been translated in other languages

26 Nov 2010

Approximately BRL125 million of debt instruments affected

Sao Paulo, November 26, 2010 -- Moody's America Latina assigned issuer ratings of Baa2 on the global scale and Aaa.br on the Brazilian National scale to Concessionaria do Sistema Anhanguera-Bandeirantes S.A. (AutoBAn). At the same time, Moody's assigned a Baa2 and Aaa.br to AutoBAn's proposed issuance of 395-day BRL 75 million senior unsecured debentures and a BR-1 rating to the 360-day BRL 50 million unsecured promissory notes. The outlook is stable for all ratings. This is the first time Moody's has assigned a rating to AutoBAn.

Assignments:

..Issuer: Conc. do Sistema Anhanguera-Bandeirantes S.A. (AutoBAn)

....Issuer Rating: Baa2 (global scale) / Aaa.br (Brazilian national scale)

....BRL75 million senior unsecured debentures: Baa2 / Aaa.br

....BRL50 million promissory notes: BR-1

RATINGS RATIONALE

The Baa2 issuer rating reflects the strong asset features of the AutoBAn road system, with a favorable alignment for connecting the metropolitan areas of Sao Paulo, Jundiai, Campinas and Limeira, some of the most well-developed and economically diversified regions of the country.

"The rating also considers the mature nature of the concession, as evidenced by a solid track record of toll traffic that dates back to 1998; this record leads to predictable cash flows and very strong credit metrics for the rating category," said Moody's analyst Cristiane Spercel. "The relatively stable regulatory environment for operating toll roads in the State of Sao Paulo further supports the rating."

The risks associated with the limited structural provisions embedded in the proposed debt issues along with the high level of investment activity of its controlling shareholder constrain the rating, as does the risk of additional investments in the concession that could lead to further borrowings taking place when capital markets are not necessarily favorable.

Moody's notes that AutoBAn's other existing debt agreements contain cross default provisions with Companhia de Concessoes Rodoviárias (CCR), its parent company. In the event that CCR goes bankrupt or files for reorganization under the Brazilian bankruptcy law, the AutoBAn debenture holders could call an early maturity event and execute their rights derived from the debentures' guarantees. As a result, AutoBAn's issuer rating also incorporates the risk profile of CCR on a consolidated basis.

The CCR group has a strong track record of sizeable investments that include participating in auctions for new concessions and acquiring operating companies, as illustrated by the recent acquisition of Rodovias Integradas do Oeste S/A, a 516- kilometer concession in the state of Sao Paulo for approximately BRL1.3 billion. The group's core business is the operation of 2,093 km of toll roads in Brazil under long-term concession agreements granted by the federal and the state governments in Sao Paulo, Rio de Janeiro and Parana, which accounts for over 90% of the group's revenues and cash flows. Nevertheless, over the past few years the group has been diversifying its portfolio of concessions by participating in the Line 4 of the São Paulo subway system, the concession for vehicle emissions inspection in city of Sao Paulo though Controlar, and the management of electronic toll payments through the STP.

Notwithstanding its strategy to pursue opportunistic investments in the transportation industry, CCR has historically demonstrated that it is a prudent investor that engages in new ventures only with reasonable rates of return. On a consolidated basis, additional leverage is largely limited by financial covenants that restrict Net Debt to Ebitda ratio higher than 3.0 times and Ebitda to net interest expenses lower than 2.0 times.

CCR's access to the local banking and capital markets has been resilient, supported by its experienced management team and relatively higher corporate governance standards compared to local peers. Financing for CCR's various concessions has been mostly in the form of long-term project finance debt with the Banco Nacional de Desenvolvimento Economico e Social (BNDES) and the Inter-American Development Bank (IDB), complemented with debentures and equity offering in the capital markets. Thus, Moody's views the risk of any major cash draining of AutoBAn in order to fund new CCR group projects as relatively low in the near term.

The proposed debt issuances of AutoBAn in the total amount of BRL125 million will be used to complement the funding for its capital expenditures and working capital needs in the near term. The concessionaire is in the final stages of a significant investment cycle of approximately BRL530 million, primarily to improve the Anhanguera road and to reduce traffic congestion in the metropolitan area of Sao Paulo. These investments triggered a review of the concession agreement to restore the economic equilibrium of the concession through the extension of the concession tenor and partial retention of concession liability payments.

Although there are limited structural provisions embedded in the proposed debt issuances, AutoBAn's other debt agreements outstanding until 2014 comprise adequate protection clauses for the bondholders. Those provisions limit additional debt issuances only to the financing of capital expenditures in the concession or to support working capital needs up to BRL50 million. Additionally, there are financial covenants that largely restrict the distribution of dividends while Net Debt to EBITDA is above 2.5 times and Debt Service Coverage Ratio is lower than 1.3 times. Moreover, the concession agreement requires the company to maintain a minimum equity capital of 10% the amount of accumulated investments in the concession projected for the next 12 months.

Going forward, AutoBAn is committed to BRL1.2 billion in investments over the remaining 15 years of the concession, of which approximately BRL490 million will be disbursed over the next few years for the construction of 126 kilometers additional lanes by April 2014. These investments are consistent with the current concession agreement, which will not be subject to review for additional compensation.

In the medium term, the concessionaire could also invest BRL360 million for the construction of an extension of the Anhanguera road to the CEAGESP, the largest agricultural distribution center in the metropolitan area of Sao Paulo, and another BRL180 million in a new road section between the city of Vinhedo and the Viracopos Airport in the metropolitan area of Campinas; however, these investments are still under negotiation with the regulator. The ultimate magnitude and timing of these potential capital investments could exert pressure on AutoBAn's financial performance.

ARTESP, the concession authority of Sao Paulo since 2002, is generally supportive of toll road operators, as the recent amendments in the concession agreement with AutoBAn demonstrate. Although not completely independent of political influence, from a credit perspective, the regulatory framework of Sao Paulo can be considered above the Brazilian average in terms of the transparency of its tariff setting mechanisms and the protection against events outside the control of the concessionaire. The concession agreement provides for annual tariff increases in line with inflation as measured by the general price index (IGP-M).

AutoBAn has demonstrated a strong track record of tolled traffic. From 1999 through 2009, AutoBAn's toll traffic presented an average growth rate of 6.4% per year, which compares favorably with the Brazil's average GDP growth of 3.3% per year during the same period. The traffic volumes at AutoBAn were virtually flat in 2009 as a result of the tighter economic conditions that led to no growth in the Brazilian GDP in 2009; however, in the first nine months of 2010 traffic volumes grew 14.4% compared with the same period in 2009 indicating a strong recovery.

The solid traffic volumes and the stable regulatory environment in the state of Sao Paulo support AutoBAn's strong credit metrics for its rating category. The Funds From Operations (FFO) to Debt has been around 24% over the past three years and its cash interest coverage ratio has been in the 5.5x- 6.0x range. Those indicators map high for the Baa category in Moody's rating methodology for operational toll roads. While AutoBAn engaged in significant capital expenditures over the last three years, the overall leverage has been virtually unchanged and the Debt to EBITDA ratio has been 2.7x on average from 2008 through September 2010. These strong indicators are partially offset by a low retained cash from operations driven by high dividend distribution. This practice is generally in line with other mature toll road concessions.

Moody's adjusts AutoBAn's debt to include about the off-balance-sheet concession liabilities of approximately BRL1.5 billion and refinanced taxes of approximately BRL390 million generated through the company's adherence to the Federal Program of Fiscal Recovery (REFIS).

The stable outlook reflects Moody's opinion that AutoBAn's operational performance will continue to be strong during the remaining life of the concession in light of solid credit fundamentals boosted by the expected growth in the Brazilian GDP. Moody's expects that the payment of dividends and additional leverage are likely to continue over the next years but Moody's expects them to be prudently managed so that credit metrics remain within the current rating category.

The rating or the outlook could be upgraded if the company were to steadily improve its liquidity profile and produce credit metrics in line with or exceeding historical performance so that the FFO to debt ratio remains above 30% and interest coverage stays above 5.5 times on a sustainable basis.

The rating or the outlook could be downgraded if there is a significant and sustained deterioration in credit metrics so that FFO to debt ratio falls below 20% and interest coverage ratio is below 4.0x for an extended period of time. Deterioration in the credit quality of CCR could also exert downward rating pressures

Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".br" for Brazil. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Implementation Guidance published in August 2010 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings"

The principal methodology used in rating AutoBAn was Operational Toll Roads rating methodology published in December 2006. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

AutoBAn is an operating subsidiary of Companhia de Concessoes Rodoviarias (CCR, unrated), one of Brazil's largest toll-road concession groups, which controls approximately 2,093 kilometers of toll road concessions. CCR is controlled by a consortium of AGConcessoes, Camargo Correa and Soares Penido Concessoes. In the last 12 months ended Septermber 30, 2010, CCR attained consolidated revenues of BRL3.6 billion (USD2.0 billion) and an EBITDA of BRL 2.5 billion (USD1.4 billion), AutoBan accounted for 35% of the revenues and 39% of the EBITDA.

AutoBAn holds a 28-year concession to operate the toll road services of the Anhanguera- Bandeirantes road system, a 317-kilometer concession in the State of Sao Paulo, which the state regulatory agency, Agência Reguladora de Serviços Públicos Delegados de Transporte (ARTESP), granted in May 1998. In the last 12 months ended September 30, 2010, the company reported an annual tolled traffic of 232.5 million of equivalent vehicles.

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, confidential and proprietary Moody's Investors Service's information, confidential and proprietary Moody's Analytics' 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.

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.

Sao Paulo
Cristiane Spercel
Associate Analyst
Infrastructure Finance Group
Moody's America Latina Ltda.
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

New York
Chee Mee Hu
MD - Project Finance
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's America Latina Ltda.
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16th Floor, Room 1601
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Brazil

Moody's assigns Aaa.br issuer rating to AutoBAn; outlook stable
No Related Data.
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