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Rating Action:

Moody's assigns (P)Baa2/(P)Baa3 ratings to SIAS's EMTN programme; outlook stable

06 Oct 2010

First-time rating

London, 06 October 2010 -- Moody's Investors Service has today assigned a long-term senior secured rating of (P)Baa2 and a senior unsecured rating of (P)Baa3 to the EUR2 billion Euro Medium Term Note programme of SIAS -- Società Iniziative Autostradali e Servizi S.p.A. ("SIAS"). The outlook assigned to the ratings is stable.

SIAS is the second-largest toll road operator in Italy. The company's network consists of approximately 827.7 km of tolled motorway (as well as an additional 134 km currently under construction), operated through eight concessions with maturities ranging from 2016 to 2037. The main contributor to traffic volumes on SIAS's concession network is SATAP, which is the operator of the A21 Turin-Alessandria-Piacenza and the A4 Turin-Milan motorways, which in 2009 accounted for almost half of SIAS's overall traffic volumes. SIAS's service area exhibits good characteristics, as the company's network covers Italy's north-western region, which is one of the wealthiest and most economically active in the country.

RATING RATIONALE

"SIAS's ratings reflect the low business risk associated with its toll-road operations, which are exposed to limited competition and are performed within a reasonably established regulatory framework" says Raffaella Altamura, an analyst in Moody's Infrastructure Finance Group. "Whilst toll road concessions in Italy have been subject to a government review in recent years, the finalisation of new concession contracts for SIAS's network underpins the company's credit quality, as it introduced additional clarity and transparency to the underlying regime without fundamental alterations" continues Ms. Altamura.

SIAS's ratings also reflect the relatively short remaining life of its concessions (weighted average of 13 years as of year-end 2009) compared with other European operators, which constraints the group's debt capacity. To support current ratings, Moody's expects that SIAS will achieve funds from operations (FFO) interest cover of at least 4.0x and FFO/debt positioned at least in the low teens and trending toward the mid teens in the medium term. More generally, the rating agency's guidance in respect of such parameters is tighter than for some of its peers, reflecting SIAS's shorter weighted average concession life. Moody's also cautions that the expected parameters for FFO/debt and FFO interest cover within the current rating category will likely shift upwards over time, in order to reflect the further reduction in the company's remaining concession life.

Moody's notes that certain parts of SIAS's networks require some expansion and modernisation works. Consequently, the company is committed to a relatively sizeable capital programme. Projected expenditure should total EUR2.8 billion (gross of government grants), mainly concentrated in the period to 2016. Whilst SIAS's investment plan will lead to an increase in debt burden, Moody's expects that the tariff increases under the concession contracts should allow the company to maintain a stable financial profile. Hence, the stable outlook associated with SIAS's ratings - which Moody's sees as being comfortably positioned at the current level - reflects the expectation that, despite the company's relatively sizeable investment plan, SIAS should meet the minimum ratio guidance indicated above.

In the short term, upward pressure on SIAS's ratings could develop following a sustainable strengthening of the key credit metrics such as FFO interest coverage above 6.0x and FFO/debt above twenties. Over the longer term, the completion of the company's investment plan and visibility on the evolution of the remaining average concession life for the group could result in positive rating pressure.

Downward rating pressure could develop in case of: (i) a material change in the terms and conditions of key concessions that negatively impacts the overall group's business or financial risk profile; (ii) large-scale, debt-funded acquisitions/investments or diversification away from the domestic infrastructure activities and (iii) failure to maintain the expected minimum financial profile mentioned above (i.e. a ratio of FFO/debt persistently below the low teens and FFO interest cover below 4.0x).

Under the recently approved EMTN programme, SIAS has the option to issue either secured or unsecured notes. The unsecured notes will constitute direct, general and unconditional obligations of the issuer and will at all times rank pari passu among themselves and at least pari passu with all other present and future unsecured obligations of the issuer (including SIAS's existing convertible bond). Secured notes will benefit from a first-ranking security interest over the intercompany loans that will be used by SIAS to downstream the proceeds of the secured notes to its operating subsidiaries, depending on their specific requirements. SIAS will also introduce cross-default and cross-acceleration clauses between such intercompany loans and the notes issued at the holding company level (both secured and unsecured). The company will also require future lenders providing funds to SIAS to become party to an intercreditor agreement, applying in case of a default and assuring that the proceeds arising from the enforcement of each pledged intercompany loan will be shared pro rata and pari passu among all the holders of secured notes and the other classes of secured creditors of SIAS.

Under this structure, Moody's believes that secured notes will effectively rank pari passu with creditors at the operating subsidiaries level thus avoiding structural subordination issues associated with the group's current funding structure, with the vast majority of the debt located at the operating companies level. As a result, Moody's has assigned a Baa2 rating to the EMTN senior secured notes, which is in line with the rating agency's assessment of the consolidated credit strength of the group. In contrast, the unsecured notes have been rated Baa3 - one notch lower than the group's consolidated credit assessment - reflecting their structurally and, in respect of secured notes, contractually subordinated position. Nevertheless, Moody's understands that SIAS intends to mainly issue secured notes as part of its funding strategy and notes that SIAS's EMTN programme includes the option of converting the secured notes into unsecured notes when the ratio of holding company debt-to-consolidated debt reaches at least 85%. Moody's notes that in such a scenario the conversion of the secured notes into unsecured notes would be unlikely to trigger a rating downgrade as the amount of debt at the operating companies level would not be regarded as material to justify a notch adjustment for structural subordination.

The principal methodology used in rating SIAS was the 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.

SIAS is the second-largest toll road operator in Italy, accounting for approximately 15% of the country's motorway network. Through its eight concessions, SIAS operates 827.7 km of tolled motorway (as well as an additional 134 km currently under construction).

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.

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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.

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London
Raffaella Altamura
Analyst
Infrastructure Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Monica Merli
MD - Infrastructure Finance
Infrastructure Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
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Moody's assigns (P)Baa2/(P)Baa3 ratings to SIAS's EMTN programme; outlook stable
No Related Data.
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