EUR1.1 billion of debt securities affected
London, 08 July 2011 -- Moody's Investors Service has today downgraded the ratings of debt issued
by Brisa Concessao Rodoviaria ("BCR") to Baa3 from Baa1. Concurrently,
Moody's has downgraded the (P)Baa1 rating of the company's Euro
Medium Term Note ("EMTN") programme to (P)Baa3 from (P)Baa1.
The ratings remain on review for further possible downgrade.
RATINGS RATIONALE
Today's rating action follows the earlier downgrade of the rating
of the government of the Republic of Portugal ("RoP") to Ba2
with a negative outlook from Baa1, on review for downgrade.
The following drivers prompted Moody's decision to downgrade and
assign a negative outlook to the government of RoP:
1. The growing risk that Portugal will require a second round of
official financing before it can return to the private market, and
the increasing possibility that private sector creditor participation
will be required as a pre-condition.
2. Heightened concerns that Portugal will not be able to fully
achieve the deficit reduction and debt stabilisation targets set out in
its loan agreement with the European Union (EU) and International Monetary
Fund (IMF) due to the formidable challenges the country is facing in reducing
spending, increasing tax compliance, achieving economic growth
and supporting the banking system.
Despite BCR's solid standalone financial position, the rating
of the debt issued under the EMTN programme is constrained by that of
the government of RoP due to the company's inability to disconnect
itself from local economic and market circumstances. In accordance
with Moody's previously published guidance, infrastructure
and utility companies would not normally be expected to have a rating
more than two notches higher than the government of the country where
the majority of their business is located. BCR's rating has
been downgraded to Baa3, the top end of the range of rating guidance
as it currently applies to Portugal, and remains on review for further
downgrade pending Moody's final conclusion as to whether BCR should
have a rating either one or two notches above that of the government of
RoP.
To retain an investment grade credit rating, Moody's would
expect BCR to maintain an ability to survive closure of the debt markets
to Portuguese borrowers for a period of at least two years under a downside
stress scenario incorporating lower revenues and higher debt costs.
The rating review will focus on (1) BCR's current and expected liquidity
profile and action that may be taken to improve this and (2) the condition
of the debt markets for Portuguese borrowers over the next few weeks in
terms of ongoing availability of finance and cost thereof, and the
likely impact on BCR's financing plans. Nevertheless,
any further rating downgrade is expected to be limited to one rating notch.
BCR's Baa3 rating reflects (i) the stability and visibility of the company's
business model and cash generation under the terms of its concession;
(ii) a road network that covers Portugal from north to south and from
east to west that is the backbone of the country's transport system;
(iii) the covenant package and other creditor protections incorporated
within the EMTN programme; (iv) a moderate capital investment programme;
and (v) the significant constraint on its credit quality as a result of
the country risks (macroeconomic and financial) associated with being
based in Portugal.
BCR has very significant near-term debt maturities; in addition
to the EUR500 million bond due in 2013, all of the company's
existing bank facilities fall due by the end of 2012. Moody's
notes, however, that the company has recently renewed a number
of facilities on reasonable terms and also that Brisa S.A.,
BCR's publicly listed parent, has about EUR800 million of
cash in addition to the circa EUR150 million of reserves at BCR.
Moreover, BCR's operating cash flow is holding up well -
after recent declines, traffic volumes increased by 2.6%
during Q1 2011 (compared to Q1 2010) - and the company benefits
from some flexibility in terms of its capital investment programme with
spending on widening schemes being subject to traffic growth.
The rating review will seek to clarify BCR's financing needs in
the light of likely cash flow generation, capital expenditure plans
and forthcoming debt maturities and BCR's plans to secure reliable
committed sources of funding to support these borrowing requirements under
base case and possible downside scenarios in terms of operating performance
and funding costs. The review will further consider the future
functionality of debt markets for Portuguese borrowers and the impact
that this will have on BCR's ability to finance itself. The review
of BCR's liquidity profile will be considered in light of these
determinations.
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 for a copy of this methodology.
BCR, headquartered in Lisbon, is the operator of Portugal's
largest toll road network with 11 motorways covering a total of 1,095
kilometres under a concession ending in 2035. The Company is largest
subsidiary of Brisa-Auto-Estradas de Portugal S.A..
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following:
parties involved in the ratings, parties not involved in the ratings,
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Service information, confidential and proprietary Moody's
Analytics information.
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the lead rating analyst and to the Moody's legal entity that has issued
the rating.
London
Neil Griffiths-Lambeth
VP - Senior Credit Officer
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
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Moody's downgrades BCR to Baa3, under review for further downgrade
