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Global Credit Research - 15 Mar 2011
Approximately BRL 600 million of Debt Securities Affected
Sao Paulo, March 15, 2011 -- Moody's América Latina Ltda. has assigned a Ba3 global
scale rating and A3.br Brazilian national scale corporate family
rating to América Latina Logística S.A. ("ALL")
and to its proposed BRL 600 million senior unsecured notes. The
proceeds will be used to partially pay down debt coming due over the next
two years extending the company's debt maturity schedule and to fund its
ongoing capital expenditures program. This is the first time Moody's
has assigned a rating to ALL. The ratings outlook is stable.
..Issuer: América Latina Logística S.A.
....Corporate Family Rating: (Ba3) (global
scale); (A3.br) (Brazilian national scale)
....BRL 600 million proposed senior unsecured
debentures: A3.br (Brazilian national scale)
"ALL's Ba3 rating reflects its position as the largest independent
operator of a rail network under long-term exclusive concession
agreements in the south and southeastern regions of Brazil and parts of
Argentina, an area that is responsible for 65% of Mercosul's
GDP and which also accounts for 78% of all of South America's
grain exports", said Filippe Goossens, Senior Vice President
of Moody's America Latina. "The rating also takes into
consideration the strong relationships the company has developed with
a number of key players in the agricultural markets which have as the
only alternative shipping method the highly fragmented and infrastructure-challenged
trucking industry; the high degree of take-or pay-contracts;
its high operating margins when compared to global peers in the B1-Ba3
rating category, an attractive funding model for its rolling stock,
and future growth opportunities in the container shipping market through
its recently formed Brado Logistica venture" added Goossens.
On the other hand, ALL's rating is constrained by its high
leverage, a result of the under-investment in Brazil's
railroad infrastructure prior to the privatization of the system in 1997
and which has required and continues to require the company to make significant
catch-up investments; free cash flow which is not expected
to turn positive before 2013, partially due to the ongoing investment
in the Rondonopolis extension of its Malha Norte concession; its
high dependence on the shipment of agricultural commodities (which can
be subject to unforeseen unfavorable weather conditions and export disruptions)
and its still largely regional focus despite the acquisition of its Argentinean
network in 1999.
The proposed BRL 600 million senior unsecured amortizing notes,
which will consist of two series (one with a five year and the other with
a seven year final maturity) and which will be issued at the holding company
level (ALL -- America Latina Logistica S.A.),
are similarly rated A3.br as they will benefit from an unconditional
guarantee from ALL Malha Sul; ALL Malha Oeste; ALL Malha Paulista
and ALL Malha Norte, its principal Brazilian operating subsidiaries
and as such mitigate the structural subordination issue. Proceeds
will be used to refinance current debt maturities, fund the company's
ongoing capex program and improve the company's debt maturity profile.
The stable outlook reflects Moody's expectation that ALL's
rail-based logistics operations will continue to benefit from the
booming world-wide demand for Brazil's agricultural products,
that capital expenditures will start to decline next year as a percentage
of revenues upon the completion of the Rondonopolis project allowing the
company to turn modestly free cash flow positive by 2013 and that ALL
will continue to be able to maintain adequate liquidity to continue to
invest in its business and address upcoming debt maturities.
ALL, which started operations in 1997 following the privatization
of Brazil's ageing and inefficient railroad infrastructure,
operates a rail network that extends to 21,300 kilometers of tracks
in the heartland of Brazil's (Matto Grosso, Mato Grosso do
Sul, Sao Paulo, and the entire southern region of Brasil)
and Argentina's agricultural industry (Mendoza, San Luis,
Cordoba, Province of Buenos Aires and Corrientes) with 1,095
locomotives, 31,650 railcars, 650 highway vehicles,
distribution centers and warehousing facilities. The company went
public in 2004 and today counts BNDESPAR (the investment arm of Brazil's
development bank) and a number of national pension funds as its key investors.
Together, its group of controlling shareholders own 36,3%
of the total shares. The company is listed on Bovespa's Novo
Mercado making it compliant with the country's highest corporate
As a result of the under-investment in Brazil's railroad
infrastructure prior to its privatization and the growth opportunities
presented by the expanding agri-markets in Brasil, ALL is
expected to remain free cash flow negative until at least the end of 2012.
This weak cash flow performance has resulted in a number of financial
metrics such as leverage (Gross Adjusted Debt/EBITDA of 4.5x and
Gross Adjusted Net Debt/EBITDA of 3.9x, when allowing for
a minimum BRL 1 billion cash balance on hand at all times) and retained
cash flow (RCF/Gross Adjusted Debt of 8.9% and RCF/Net Adjusted
Debt of 10.3%) which are more in line with a "B"
credit profile. The Ba3 rating as such is forward looking and driven
by our expectation that ALL will be able to improve its EBITDA performance
and that at the end of the Rondonopolis investment program (scheduled
for mid 2012) to more fully harvest the benefits of its position as the
exclusive operator of railroad concessions in those regions of Brazil
and Argentina that are well positioned to benefit from the growing worldwide
demand for soft commodities, the lack of alternative shipping opportunities
beyond trucking for its key clients in its agricultural segment,
and the high degree of take-or pay contracts.
In 2009, ALL issued convertible dentures to fund its ongoing capital
expenditures program (which have since been converted into common stock)
and today continues to benefit from a strong relationship with BNDES which
provides the company with BRL 2.8 billion of committed credit lines
to fund ongoing general capital expenditures programs as well as the Rondonopolis
track expansion program. The credit lines which are available until
the end of 2012 have still BRL 2.2 billion in availability as of
March 1, 2011. Important to note is that most of the company's
rolling stock acquisitions (except for locomotives) are financed through
its clients in the form of leases (often with a purchase option at the
end of the contract). The current duplication of a track to the
port of Santos for the shipment of sugar under a long term contract is
fully funded by RUMO, a subsidiary of Cosan S.A. (rated
Ba2, stable outlook). The pre-dominance of take-or-pay
contracts (an estimated 76% of all contracts) provide a meaningful
degree of cash flow stability which is relevant giving the company's
ongoing aggressive capex spending needs.
ALL's current business plan is built around a steady increase in shipments
across its railroad infrastructure (10% volume increases per annum)
by taking advantage of growing market opportunities as well as market
share gains. A number of new initiatives such as the Rondonopolis
track expansion program, which will help it to further extend its
reach into a key agricultural frontier for Brasil; the Corumba project
which would allow it to build a footprint in the market for shipping iron
ore; the duplication of a track leading to the port of Santos used
by Rumo S.A., and its accelerated entry into the container
market through the formation of its Brado Logistica subsidiary should
allow ALL over time to drive cash flow growth and diversify its portfolio
away from its current high dependence on the agricultural markets.
The rating or outlook could be upgraded, although unlikely over
the near term, if ALL strengthens key cash flow metrics, such
as Retained Cash Flow to Total Adjusted Net Debt (considering a minimum
cash position of BRL 1.0 billion) above 25% on a sustainable
basis and the expectation that cash flow can turn positive on a sustainable
basis while maintaining above industry average operating margins..
ALL's rating could be lowered or outlook changed to negative if
LTM Total Adjusted Net Debt (considering a minimum cash position of BRL
1.0 billion) to EBITDA increases above 4.75x for two consecutive
quarters, if the company is unable to turn free cash flow positive
by the end of the Rondonopolis investment program, and EBITDA margins
were to drop below 50% for a sustained period.
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
The principal methodology used in rating ALL was Moody's Global Freight
Railroad Industry Rating Methodology (published March 2009 and available
on Moody's website). Other methodologies and factors that may have
been considered in the process of rating this issuer can also be found
on Moody's website.
ALL -- América Latina Logística S.A.,
headquartered in Curitiba -- Brazil, is Latin America's
largest independent rail-based logistics operator. During
2010 ALL reported consolidated net revenues of BRL 2.75 billion
(about USD 1.57 billion converted by the average exchange rate).
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 information, and confidential and proprietary Moody's
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.
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's America Latina Ltda.
Moody's America Latina Ltda.
Moody's assigns Ba3/A3.br ratings to América Latina Logística S.A. ("ALL") and its proposed BRL 600 million senior unsecured debentures
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