Approximately BRL150 million of debt instruments affected
Sao Paulo, February 18, 2011 -- Moody's America Latina (Moody's) has assigned issuer ratings of
Baa3 on the Global Scale and Aa1.br on the Brazilian National scale
to Concessionaria de Rodovias do Oeste de Sao Paulo - ViaOeste
S.A. (ViaOeste). At the same time, Moody's
assigned Ba1 and Aa2.br ratings to ViaOeste's proposed issuance
of BRL150 million subordinated debentures due in 2015. The outlook
is stable for all ratings. This is the first time Moody's has assigned
ratings to ViaOeste.
The proceeds from the proposed debentures will be used to help fund working
capital and to support dividend payments in the near term.
....Issuer: Concessionaria de Rodovias
do Oeste de Sao Paulo - ViaOeste S.A. (ViaOeste)
....Issuer Rating: Baa3 (global scale)
/ Aa1.br (Brazilian national scale)
....BRL150 million subordinated debentures:
Ba1 / Aa2.br
The Baa3 and Aa1.br issuer ratings reflect ViaOeste's strong
asset features as a road system with a favorable alignment connecting
the west metropolitan area of Sao Paulo to Sorocaba. The ratings
also reflect the mature nature of this concession evidenced by a solid
operating track record that dates back to 1998. The relatively
stable regulatory environment for operating toll roads in the state of
Sao Paulo and ViaOeste's strong credit metrics further support the
The risks associated 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.
The ratings also reflect ViaOeste's relatively weak liquidity and
debt maturity profile when compared with other investment grade operating
The Ba1 and Aa2.br ratings assigned to the proposed BRL150 million
debentures are one notch lower than ViaOeste's issuer ratings to reflect
the subordination of the debentures to existing BRL506 million senior
secured debentures issued by ViaOeste in 2007.
ViaOeste's proposed debentures provide adequate protection clauses for
the bondholders. These legal provisions limit additional debt issuances
ranking above the subordinated debt class only to the financing of new
capital expenditures acknowledged by the regulator in the concession agreement
or to support working capital needs up to BRL60 million. Additionally,
there are financial covenants that largely restrict the distribution of
dividends when the debt service coverage ratio is lower than 1.2
times and net debt to EBITDA is above 4.0 times (or above 3.0
times according to the provisions included in the indenture of ViaOeste's
other debt outstanding until 2015). Moreover, the concession
agreement requires the company to maintain a minimum equity capital of
10% of the amount of accumulated investments in the concession
and projected for the next 12 months.
Moody's notes that ViaOeste's other existing debt agreements also contain
cross default provisions with Companhia de Concessoes Rodoviarias (CCR),
its parent company. In the event that CCR goes bankrupt or files
for reorganization under the Brazilian bankruptcy law, the ViaOeste
debenture holders could call an early maturity event and execute their
rights derived from the debentures' guarantees. As a result,
ViaOeste'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. Notwithstanding
its strategy of pursuing opportunistic investments in the transportation
industry, CCR has historically behaved like a prudent investor,
seeking new ventures only with the expectation of reasonable rates of
return. On a consolidated basis, additional leverage is largely
limited by financial covenants that requires the net-debt-to-EBITDA
ratio lower than 3.0 times and the EBITDA-to-net-interest
expenses higher 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 high 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. Thus, Moody's views the risk of any major cash
draining of ViaOeste in order to fund new CCR group projects as relatively
low in the near term.
ARTESP, the concession authority of Sao Paulo since 2002,
is generally supportive of toll road operators in the state as the recent
amendments in the concession agreement with ViaOeste demonstrates.
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
In 2006, ARTESP extended the concession of ViaOeste for an additional
57 months in order to restore its financial equilibrium which had been
impacted by additional investments mainly for road improvement in the
regions of Sorocaba and Sao Roque. In 2009, ViaOeste engaged
in other significant capital expenditures of approximately BRL250 million
primarily to help reduce traffic congestion in metropolitan Sao Paulo.
These investments triggered another review of the concession agreement
for the economic-equilibrium restatement through partial retention
of concession liability payments. At the same time, the concessionaire
agreed to reduce tariffs at certain toll plazas that were reconfigured
to capture higher traffic volumes. These adjustments to the concession
agreement are indicative of the reasonable and supportive nature of the
Going forward, ViaOeste is committed to BRL517 million in investments
over the remaining 12 years of the concession, of which approximately
80% will be disbursed over the next five years. Investments
in the near term include the construction of 14 kilometers of side lanes
and bridges in the Sorocaba region. These investments are consistent
with the current concession agreement and will not be subject to review
for additional compensation.
In the medium term, the concessionaire could also invest BRL67 million
for the construction of an extension of the Castello Branco road to the
CEAGESP, the largest agricultural distribution center in the metropolitan
Sao Paulo area; however, this investment is still under negotiation
with the regulator. Another potential investment for ViaOeste is
the incorporation of an additional section of the Raposo Tavares road
between the City of Cotia and the metropolitan area of Sao Paulo.
Moody's estimates that the investments for recovery and improvement
of this road section could cost from BRL1.3 billion to BRL 1.7
billion. This investment also depends on negotiation with the regulator
for additional compensation. The ultimate magnitude and timing
of these potential capital investments could exert pressure on ViaOeste's
ViaOeste's road system connects the cities of Sao Paulo and Cotia to Sorocaba,
in the interior of the state, passing through Barueri and Osasco.
Real estate developments initiated during the 1970's coupled with
fiscal incentives resulted in a strong and dynamic economy in the region.
The industries along the concession area include a notable service economy,
complemented by large distribution centers for retail and building materials.
It is also an important route for agricultural freight (mainly sugar cane)
coming from rural areas in the interior of the state.
Around 80% of ViaOeste's total traffic volumes are at the
Castello Branco road section, which is considered one of the best
Brazilian roads in terms of quality and safety. Castello Branco
runs about the same direction as Raposo Tavares, so the immediate
competition is largely limited within the concession. The large
alternative routes are Anhanguera and Bandeirantes (the AutoBan system),
which are connected to the Castello Branco road section through the Rodovia
das Colinas and the Rodoanel West section. These routes also have
toll plazas, which mitigate competition Depending on the final destination,
there are other smaller alternative routes but those are not comparable
in terms of quality and safety.
ViaOeste has demonstrated a solid track record of traffic volumes well
balanced between commuters and commercial vehicles. From 1999 through
2009, Viaoeste's toll traffic achieved 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.
Despite the tighter economic conditions that led to no growth in the Brazilian
GDP in 2009, traffic volumes at ViaOeste increased 1.3%
in 2009. The comparison of traffic trends in 2010 is somewhat impaired
by the changes in the configuration of certain toll plazas that are reflected
in a significantly larger traffic volume reported by the company.
Excluding the impact of new toll plazas, Moody's estimates
that traffic volumes grew by 10.3% in 2010, indicating
strong recovery since 2009.
The solid traffic volumes and the stable regulatory environment in the
State of Sao Paulo support ViaOeste's strong credit metrics for its rating
category. The funds from operations (FFO) to debt has been around
20% in years of significant capital expenditures, such as
2007 and 2009, improving to 23%-24% thereafter.
The cash interest coverage ratio has been in the 3.8x- 4.5x
range over the last three years while leverage as measured by the debt-to-EBITDA
ratio has been around 2.8x. These strong indicators are
partially offset by a low retained cash from operations driven by high
dividend distributions. This practice is generally in line with
other mature toll road concessions.
Moody's adjusts ViaOeste's debt to include the off-balance-sheet
concession liabilities of approximately BRL300 million and refinanced
taxes of approximately BRL60 million generated through the company's adherence
to the Federal Program of Fiscal Recovery (REFIS).
The stable outlook reflects Moody's opinion that ViaOeste's operational
performance will continue to be strong during the remaining life of the
concession, albeit with a relatively weak liquidity profile.
Expected growth in the Brazilian GDP should support solid credit fundamentals.
We expect that the payment of dividends and additional leverage are likely
to continue over the next years but we expect them to be prudently managed
with credit metrics remaining 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 the FFO-to-debt
ratio falls below 20% and interest coverage ratio is below 4.0x
for an extended period of time. Deterioration in the liquidity
profile or 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 (GSR) 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 ViaOeste 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.
Concessionaria de Rodovias do Oeste de Sao Paulo - ViaOeste S.A.
(ViaOeste) 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 BRL2.5
billion (USD1.4 billion), ViaOeste accounted for 16%
of the revenues and 17% of the EBITDA.
ViaOeste holds a 25-year concession to operate the toll road services
of the Castello Branco-Raposo Tavares road system, a 173-kilometer
concession in the State of Sao Paulo, which the state regulatory
agency, Agencia Reguladora de Serviços Publicos Delegados
de Transporte (ARTESP), granted in March 1998. In the last
12 months ended September 30, 2010, the company reported an
annual tolled traffic of 95 million of equivalent vehicles.
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'
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.
Infrastructure Finance Group
Moody's America Latina Ltda.
Chee Mee Hu
MD - Project Finance
Infrastructure Finance Group
Moody's Investors Service
Moody's America Latina Ltda.
Moody's assigns a Aa2.br rating to ViaOeste's subordinated debentures; outlook stable
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