Approximately BRL350 million of debt instruments affected
Sao Paulo, January 17, 2011 -- Moody's America Latina Ltda (Moody's) assigned a Ba1 rating on the global
scale and Aa2.br rating on the Brazilian National scale to the
BRL350 million senior secured debentures to be issued by Concessionaria
das Rodovias Ayrton Senna e Carvalho Pinto S.A. (Ecopistas)
and guaranteed by Ecorodovias Concessoes e Servicos S.A.(Ecorodovias
Concessoes). At the same time, Moody's assigned Issuer Ratings
of Ba2 on the global scale and Aa3.br on the Brazilian national
scale to Ecopistas. The outlook is stable for all ratings.
This is the first time Moody's has assigned ratings to Ecopistas.
The debentures will be issued in four series of BRL 87.5 million
each, with tenors ranging from 135 to 144 months that will begin
to amortize annually 15 to 24 months after the issue date. The
debentures will be secured by the pledge of the concessionaire's stock,
future receivables of its toll revenues and indemnification rights over
the concession assets. The proposed issue of public debentures
has a firm commitment from the arranging banks for the placement of BRL350
million, but the issuance amount could reach up to BRL370 million
depending on market conditions and eventual exercise of the additional
option. The proceeds will be used to re-finance around BRL371
million promissory notes due in June 2011.
RATING RATIONALE
The Ba2 and Aa3.br issuer ratings reflect the important service
that Ecopistas' road system provides connecting the metropolitan
area of Sao Paulo and the industrial cities of the Paraiba Valley and
the relatively stable regulatory environment for toll road concessions
in the State of Sao Paulo. The limited track record of this recently
awarded concession, the high level of indebtedness and its high
capital expenditure over the next five years constrain the rating,
as do the strong competition from the alternative route, the Rodovia
Presidente Dutra (NovaDutra).
The Ba1 and Aa2.br ratings assigned to the proposed BRL350 million
senior secured debentures are one notch higher than the Ecopistas issuer
ratings to reflect the guaranty provided by Ecorodovias Concessoes.
Created recently to consolidate the group's toll road business,
Ecorodovias Concessoes is an intermediary holding company of Ecorodovias
Infraestrutura e Logistica S.A (Ecorodovias Infraestrutura).
Ecopistas benefits significantly from the creditworthiness of the Ecorodovias
group, which is one of the largest operators of toll road concessions
in Brazil with 1,459 kilometers under long-term concessions.
In addition to Ecopistas, the group operates four more mature toll
roads strategically located in the states of Sao Paulo, Parana and
Rio Grande do Sul with concessions expiring between 2021 and 2026.
This diversified portfolio contributes to the group's stable and
predictable cash flows.
Moody's notes that the Ecopistas' issuer rating also incorporates
the risk profile of its parent company because of the operational and
financial integration of Ecorodovias and its operating subsidiaries and
the cross default clauses in Ecopistas' proposed debt agreement.
Ecorodovias Infraestrutura has strong consolidated credit metrics.
Its average Funds From Operations (FFO) to Debt has been 27% over
the past three years and its cash interest coverage ratio has been 3.9x.
In Moody's view, these metrics are likely to deteriorate in
the near term given the aggressive investment strategy of its controlling
shareholders and current investment opportunities in the Brazilian infrastructure
sector. The deterioration, however, will be largely
limited to the level of Ecorodovias Concessoes given the minimum financial
parameters embedded in its financial agreements outstanding until 2015.
These financial covenants require Ecorodovias Concessoes to maintain a
maximum net Debt to EBITDA ratio of 2.75x and a minimum EBITDA
to net interest expense ratio of 3.0x.
Embedded in the Ecopistas' proposed debentures are also covenants
designed to limit its leverage, such as a maximum net Debt to EBITDA
ratio of 4.0x, a minimum debt service coverage ratio of 1.2x
and a minimum equity capital ratio of 20%; however,
these covenants are waived while Ecorodovias is the guarantor.
The corporate guarantee is expected to be released once Ecopistas is in
compliance with the financial covenants for a period of twenty-four
consecutive months.
Moody's projections indicates that Ecopistas will not be able to
meet these covenants before 2015 as a result of its high capital expenditures.
After this period, the expected growth in traffic volumes should
strengthen the company's cash generation and lower its leverage.
Moody's projection considers Ecopistas' recent strong toll
traffic performance, which is 25% above the independent consultant
forecast, driven by a higher GDP performance and the resultant increase
in traffic volumes of commercial vehicles. Those currently represent
one third of total traffic volumes and tend to have a high correlation
with the regional economic growth.
Ecopistas concession requires improvements on the existing roads and the
construction of a 6.8-kilometer road extension in Taubate,
which Moody's estimates will cost around BRL600 million during the first
six years of the concession. Although a comprehensive EPC agreement
is not in place, which exposes the company to capital expenditure
overruns, the construction risk is manageable given the low level
of complexity and the group's track record in completing similar
projects. The BNDES is expected to finance around 60% of
Ecopistas' investment requirements. The BNDES approved a
long-term loan of BRL355.4 million by the end of 2010,
which will share the same guarantees of the proposed debentures.
ARTESP, the concession authority of Sao Paulo since 2002,
is generally supportive of toll road operators. From a credit perspective,
the regulatory framework of Sao Paulo can be considered above the Brazilian
average in terms of transparency for the tariff setting mechanisms and
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 consumers price index (IPC-A).
Moody's calculations project an average 2.4 times cash interest
coverage ratio for Ecopistas over the next five years until the required
investments are completed. After this period, the scheduled
amortization will gradually reduce leverage. The cash interest
coverage ratio is likely to improve to 4.0x as the debentures approach
maturity. Moody's expects FFO to debt to grow from the mid
single digits during the investment phase to the high teens thereafter.
As a holding company, dividends from operating subsidiaries are
Ecorodovias Concessoes' primary source of liquidity. Other sources
of cash include intercompany revenues from administrative, financial
and engineering service agreements with the affiliates. In 2008
and 2009, the operating toll concessions, including Ecovias
dos Imigrantes, Ecovia Caminho do Mar, Ecocataras e Ecosul,
distributed approximately BRL235 million in dividends to the parent company
per year and around BRL135 million in 2010. These dividends are
constrained by the debt service at the level of these operating subsidiaries,
which represents about 65% of Ecorodovias Concessoes' consolidated
debt. Nevertheless, we consider these dividends a reliable
source of cash given the mature concession profile of the operating toll
roads and their relatively low capital expenditure requirements.
In contrast, Ecopistas will not be able to distribute significant
dividends over the next five years because of its high capital expenditures.
For the next few years, Moody's foresees that the annual flow
of dividends and intercompany revenues from the operating subsidiaries
will modestly cover Ecorodovias Concessoes overhead expenses and payments
for debt service. These projections exclude Ecocataratas,
since the control of this subsidiary was transferred to Ecorodovias Infraestrutura
last December.
On a consolidated basis, Ecorodovias Concessoes has a challenging
liquidity position, evidenced by BRL826 million in short-term
debt vis-à-vis a cash position of BRL241 million
as of September 30, 2010; the risk is largely mitigated,
however, by the group's historic access to the capital markets
and the strong cash position of the ultimate parent company Ecorodovias
Infraestrutura, which raised BRL1.2 billion through an equity
offering in April 2010.
The stable outlook reflects Moody's expectation that Ecopistas will maintain
relatively high leverage within the next five years, mainly as a
result of high capital expenditures during this period. Thereafter,
the expected growth in traffic volume should provide the company stronger
cash generation and lower leverage. Moody's expects that the company
will obtain both timely and adequate long-term funding for its
capital expenditures program. Moody's also expects that an additional
leverage at Ecorodovias Concessoes will be prudently managed so that credit
metrics remain well within its debentures' financial covenants.
The rating or outlook could be upgraded if Ecopistas efficiently manages
its investment requirements and Ecorodovias Concessoes steadily improves
its liquidity profile and produces sustained credit metrics in line with
the projections or that exceed expected performance on a consolidated
basis. Quantitatively, an upgrade could be triggered if Ecorodovias
Concessoes' FFO to debt ratio remains above 35% and interest
coverage stays above 4.5x on a sustainable basis.
The ratings or outlook of Ecopistas could be downgraded if the company
performs below expectations, generating weaker credit metrics such
that the FFO to debt ratio falls below 7% and the interest coverage
ratio remains below 2.0x for an extended period. The ratings
or outlook could also be downgraded as a result of a lower level of implicit
support from Ecorodovias Infraestrutura or significant deterioration in
the creditworthiness of Ecorodovias Concessoes. Quantitatively,
a downgrade could be triggered if Ecorodovias Concessoes on a consolidated
basis performs below expectations, generating weaker credit metrics
such that the FFO to debt ratio below 25% and the interest coverage
ratio below 3.5x for an extended 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 Ratings"
The principal methodology used in rating Ecopistas 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.
Ecopistas is an operating subsidiary of Ecorodovias Infraestrutura,
which is controlled by the CR Almeida Group (45%) and the Impregilo
group (29.2%). In the last 12 months ended September
30, 2010, Ecorodovias Infraestrutura reported consolidated
revenues of BRL1,210 million (USD680 million) and EBITDA of BRL911
million (USD512 billion) of which Ecopistas accounted for 12% and
10%, respectively.
Ecopistas holds a 30-year concession to operate the toll road services
of the Ayrton Senna and the Carvalho Pinto highway system, comprising
a 135-kilometer road section with four toll plazas between the
cities of Sao Paulo and Taubate in the Paraiba Valley. The state
regulatory agency (ARTESP) granted the concession in April 2009.
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 Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Chee Mee Hu
MD - Project Finance
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
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Moody's assigns a Aa2.br rating to Ecopistas' senior secured debentures; outlook stable
