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Rating Action:

Moody's assigns Ba1/Aa2.br ratings to Vianorte' BRL150 million senior unsecured debentures; stable outlook

 The document has been translated in other languages

14 Feb 2014

Sao Paulo, February 14, 2014 -- Moody's America Latina (Moody's) assigned Ba1 and Aa2.br ratings on the global scale and on the Brazilian National Scale Rating (NSR), respectively, to the BRL150 million senior, unsecured debentures that are planned to be issued by Vianorte S.A. (Vianorte) in the next few weeks. At the same time, Moody's affirmed Vianorte's Ba1 / Aa2.br issuer ratings on the global and national scales, respectively. In addition, Moody's affirmed the Ba1/Aa2.br ratings of the Company's outstanding senior secured debentures, which mature in 2015 and 2017. The outlook is stable for all ratings.

Vianorte's Debenture Issuance will have the following financial covenants: i) Net Debt to EBITDA minus fixed concession payments equal or less than 3.5x times and Debt Service Coverage Ratio equal or higher than 1.2x.

The proceeds of this issuance will be used to prepay maturing debt, including BRL50 million of existing debentures as well as for general corporate purposes, including CAPEX, dividend distribution and intercompany loans to the parent holding company.

RATINGS RATIONALE

The Ba1 and Aa2.br issuer ratings of Vianorte reflect the mature nature of the concession, as evidenced by its solid and stable historic performance. The stable outlook reflects our opinion that Vianorte's operational performance will remain solid during the remaining life of the concession in light of strong credit fundamentals boosted by the expected continued growth in the Brazilian GDP. The rating is also supported by solid credit metrics for the rating category and the relatively strong track record of operating performance since 1998 and by the track record of a regulatory environment that has been generally supportive of operating toll road concessionaires in the State of Sao Paulo.

Notwithstanding the fundamentals of Vianorte's concession, the ratings are somewhat constrained by: (i) potential downturns in the domestic GDP; (ii) the track record of high dividend distributions which we expect will continue in the future; (iii) potential intercompany loans that could be extended to the parent holding company; and (iv) further potential political interference from the State of Sao Paulo.

Vianorte serves a relatively small but wealthy region in the State of Sao Paulo, Brazil (Baa2/stable outlook) with virtually no comparable competition from alternative routes foreseen during the remaining life of the concession.

Vianorte's sixteen-year history of tolled traffic shows that the user profile is well balanced between heavy trucks and commuter users. Commercial vehicles currently represent around 57% of the road traffic in terms of equivalent vehicles. Although the traffic of freight vehicles tends to be more volatile and move in tandem with the country's GDP, traffic at Vianorte has been relatively predictable. From 2001 through 2012, Vianorte's toll traffic presented an annual average growth rate of 4.4%, which compares slightly more favorably with the Brazilian GDP performance during the same period of 3.4% per year. In 2012, tolled traffic at Vianorte increased 4.1% reaching 34.4 million equivalent vehicles when compared to 2011 levels of 33.1 million equivalent vehicles as a result of the expansion in the agricultural business and the industrial production of the region.

Traffic growth in the 9 months 2013 was 8.8% higher than the same period of the previous year and much higher than management's expectations. On a quarterly basis, traffic increased 5.8% in the 1Q2013, 8.9% in the 2Q2013 and 11.4% in the 3Q2013 (idle truck axels started to be charged in July 2013), much above the GDP for the accumulated period which was below 2.0% for the 9 months of 2013.

Vianorte has strong credit metrics for the rating category. Toll related revenues in 2012 increased 10.1% compared to 2011, stemming from the 4.1% increase in toll traffic and the 4.26% tariff increase granted by ARTESP on July 1st, 2012, in line with inflation measured by the general price index (IGP-M) from June 2011 to May 2012. Vianorte's strong operating performance supported continued high cash flow coverage ratios despite the significant debt increase of BRL254 million debenture issuance in 2010. In 2012, the Funds from operations (FFO) to debt ratio reached 42.3%, while the FFO coverage of the cash interest (cash interest coverage ratio) was 4.4 times.

In the twelve months ended on September 30, 2013, the Funds from operations (FFO) to debt ratio reached 47.0%, while the FFO coverage of the cash interest (cash interest coverage ratio) was 5.1 times.

The constant improvement in credit metrics over the last four years is a combined result of the higher cash generation as a result of the previous mentioned higher traffic, lower operating expenses and reduction in interest rates during the period. However, going forward the continued progression into a higher interest rate cycle along with a higher level of debt as a result of the BRL150 million debenture to be raised in the next few weeks wherein the bulk of the resources will be used to transfer resources to its parent holding company will result in a negative impact on both debt and interest coverage metrics. Those ratios are forecasted to worsen to 33.3% and 4.7x in 2014 but will remain adequate for the rating category.

Vianorte has a healthy cash generation and capital structure financial profile. As a mature operating concession, capital expenditures primarily consist of maintenance requirements of approximately BRL35 million per year. Going forward, we expect cash outlays to mostly consist of dividend payments and inter-company loans.

Through the remaining life of the concession (from 2014 up to June 2018) , Vianorte is required to spend approximately BRL200 million in capital expenditures, of which about BRL160 million is targeted from 2014 to 2016. Until the end of the concession, the Company is required to pay approximately BRL234 million to the granting authority (the State of Sao Paulo) in the form of fixed concession payments, of which BRL156 million are scheduled to be paid in the next three years (2014 and 2016). For comparative purposes with other rated operational toll roads and in accordance with Moody's standard adjustments, we have adjusted the Company´s financial debt to include the present value of these required concession payments.

On June 24, 2013, the Government of the State of Sao Paulo suspended the annual tariff djustment for toll road concessionaires. Toll tariffs, which were scheduled to be adjusted for inflation on July 1st, were frozen for one year until July 1, 2014. The Government's decision followed intense public protests against tariff increases (later revoked) in the public transportation system in the city of Sao Paulo.

In order to preserve the financial-economic equilibrium of the concessionaires´ contracts the main compensatory measures announced by the State Governor were: (i) a 50% reduction of the variable concession fees, payable to the State regulatory agency - ARTESP, to 1.5% from 3.0% starting in July 2013; (ii) idle truck axles would be charged; (iii) the partial reduction or exemption of the fixed concession liability payable to the granting authority for those concessionaires that did not have delays in scheduled construction works, defined by their respective concession contracts and (iv) eventual reduction of the fixed concession fee. Despite the frozen tariffs, the decision to preserve the economic/financial equilibrium of the concession confirms ARTESP´s continued support of private-sector concessionaires in the State of Sao Paulo.

Nevertheless, according to our Operational Toll Roads rating methodology, we have adjusted the rating sub-factor 4b ("Ability to Increase Tariffs") to Baa from Aa, which reflects our perception of potentially higher political interference as well as the uncertainty as to the quality of the concession and regulatory framework (factor 4 in our methodology).

The stable outlook reflects our view that Vianorte will continue to generate stable cash flows given the mature nature of the concession, the expected growth of the domestic GDP and by the experienced management team remaining focused on improving operating performance. Moody's expects that the payment of dividends and extension of intercompany loans will continue for the remainder of the concession, but that they will be prudently managed so that the credit metrics remain within the proposed financial covenants. The stable outlook also reflects our expectation that the concession and regulatory framework in the State of Sao Paulo will continue to be supportive of private sector toll road concessionaires, and that tariff adjustments will resume in 2014 pursuant to the terms and conditions of the concession contract.

The rating could be upgraded if the company were to steadily improve its liquidity profile and produce credit metrics in line with historical performance so that the FFO to debt ratio stays above 40% and the interest coverage stays above 4.0x 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 30% and interest coverage ratio remains below 3.0x for an extended period. Deterioration in the credit quality of the parent holding company Arteris S.A., further political interference in the normal course of business of the Company or a deterioration in the quality of the concession and regulatory framework could also prompt a downgrade rating action.

Vianorte, an operating subsidiary of Arteris S.A. ("Arteris"), holds a 20-year concession to expand, operate and maintain five small adjacent roads with a total extension of 222.7 km in the interior of the State of Sao Paulo (Baa2/stable outlook). The concession was granted by the State of Sao Paulo in 1998, with approximately 4 years of remaining life.

The principal methodology used in this rating was Operational Toll Roads published in December 2006. Please see the Credit Policy page on www.moodys.com.br for a copy of this methodology.

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 ".mx" for Mexico. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Methodology published in October 2012 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

REGULATORY DISCLOSURES

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's information.

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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Please see the ratings disclosure page on www.moodys.com.br for general disclosure on potential conflicts of interests.

Moody's America Latina Ltda may have provided Other Permissible Service(s) to the rated entity or its related third parties within the 12 months preceding the credit rating action. Please see the special report "Services provided to entities rated by Moody's America Latina Ltda" on our website www.moodys.com.br for further information.

Entities rated by Moody's America Latina Ltda (and the rated entities' related parties) may also receive products/services provided by parties related to Moody's America Latina Ltda. engaging in credit ratings activities. Please go to www.moodys.com.br for a list of entities receiving products/services from these related entities and the products/services received. This list is updated on a quarterly basis.

The date of the last Credit Rating Action was 11/May/2013

Moody's ratings are constantly monitored, unless designated as point-in-time ratings in the initial press release. All Moody's ratings are reviewed at least once during every 12-month period.

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.br.

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.

Please see ratings tab on the issuer/entity page on www.moodys.com.br 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.br for further information.

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

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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

Please see the ratings tab on the issuer/entity page on www.moodys.com.br for additional regulatory disclosures for each credit rating.

Marcos, De Oliveira
Asst Vice President - Analyst
Infrastructure Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Moody's assigns Ba1/Aa2.br ratings to Vianorte' BRL150 million senior unsecured debentures; stable outlook
No Related Data.
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