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23 Oct 2019
London, 23 October 2019 -- Moody's Investors Service (Moody's) has today said that it is extending
the review for downgrade on the ratings of Atlantia S.p.A.
(Atlantia), holding company for the group's motorway and airport
infrastructure businesses, the toll road operator Autostrade per
l'Italia S.p.A. (ASPI) and airport operator Aeroporti
di Roma S.p.A. (ADR).
The review was initiated on 4 July 2019 after publication of a report
commissioned by the Italian Ministry of Transportation and Infrastructure
(MIT), assessing options in respect of the future of the ASPI concession
following the collapse of the Polcevera viaduct in August 2018 and which
implied heightened downside risks for the ASPI concession.
The extension of the review for downgrade for Atlantia, ASPI and
ADR recognises the group's limited financial flexibility at current
rating levels in the face of persistent downside risks following the Genoa
bridge collapse and the lack of significant progress in discussions related
to the future of the ASPI concession post the incident. Moody's
notes that some Government officials have recently indicated that a decision
on the future of the ASPI concession may be taken in the next few weeks.
However, and while there may shortly be greater clarity, the
continuing uncertainty is credit negative and Moody's cautions that
it could erode credit quality and result in downward pressure on ratings.
More specifically, the review for downgrade on the ratings reflects
the risks linked to the ultimate consequences of the collapse of the Polcevera
viaduct on the Atlantia group's financial and business risk profile,
which could result in a renegotiation of the ASPI concession on terms
less favourable than the current framework or, under an extreme
scenario, in the potential commencement of a termination procedure
of the concession, thus increasing uncertainties and exposing the
group to the risk of lengthy litigation procedures and sizeable fines.
While the cause(s) of the Genoa incident remain unknown, some government
officials have indicated that the ASPI concession could be terminated
if the company did not meet its obligations under the concession.
Given the severity of the incident, the Atlantia group also remains
susceptible to heightened regulatory and political pressures, as
also evidenced by the government's stated objective of reviewing
the whole toll roads concession and tariff framework in Italy, as
well as the extension of the toll freeze on ASPI's network to mid-November
2019. More generally, the group remains exposed to the consequences
of a more confrontational stance from the concession grantor, protracted
litigation and sizeable external claims and legal costs.
ASPI's concession contract provides for a specific process for an early
termination procedure and recognises the concessionaire's right to compensation.
However, a legal report published in July 2019 and commissioned
by the MIT, highlighted diverging positions in respect of concession
termination and compensation rights. A such, the continued
review for downgrade also reflects the possibility that any negotiated
solution which may be contemplated to resolve the disagreements between
the grantor and ASPI could result in changes to the concession contract
or other costs or losses detrimental to the latter's credit profile.
More generally, in light of the political reactions to the incident
and ASPi's relatively weak negotiating position, Moody's considers
that ASPI may also be required and/or may decide that it is in its commercial
interest to make further payments beyond the contractual liabilities under
the terms of the concession agreement and will remain subject to pressure
to contribute to the costs linked to the consequences of the incident,
while operational and maintenance costs related to the management of ASPI's
motorway network could also increase as a result of regulatory pressures.
The full extent of the potential financial impact of the incident remains
therefore difficult to estimate at this stage.
Notwithstanding the persistent downside risks linked to the collapse of
the Polcevera viaduct, the Baa2 consolidated credit profile of the
Atlantia group continues to positively reflect (1) its large size and
the focus on the toll road and airport sectors; (2) the strong fundamentals
of the group's toll road network, which, following the acquisition
of Abertis is increasingly diversified and comprises essential motorway
links mostly located in Spain, France, Chile, Brazil
and Italy; (3) the reasonably established regulatory framework for
its toll road operations, albeit characterised by increasing political
pressures; and (4) a track record of relatively prudent financial
policies. These factors are balanced by (1) the group's fairly
complex structure following the Abertis Infraestructuras S.A.
(Abertis) acquisition; (2) the material increase in consolidated
debt leverage post-transaction and the very limited financial flexibility
of the group at current rating levels; (3) the shorter average concession
life of the combined Atlantia-Abertis group compared with the Atlantia
profile pre-transaction. Atlantia's Baa3 rating is positioned
one notch below the group's consolidated credit profile, reflecting
the structural subordination of the creditors at the holding company.
ASPI's and ADR's Baa2 ratings remain in line with the consolidated credit
profile of the Atlantia group.
Whilst not the current base case, Moody's cautions that any formal
assessment and notification of non-compliance with its concession
obligations and the commencement of a termination procedure would be a
significant credit negative for ASPI and, in turn, Atlantia,
given ASPI's significance in the context of the wider group's credit profile
and the linkages between the two entities.
ASPI's concession provides for a specific procedure for early termination
in the event of material and continued non-performance.
In addition, a new Decree approved in June 2019 introduced a preventive
approval, by the Italian Court of Auditors, in respect of
legislative acts issued with the purpose of terminating motorway concessions.
The ASPI concession includes details on the calculation of the compensation
due to the company in case of early termination but there is no precedent
in the Italian framework of circumstances resulting in the payment of
a termination payment. It is likely that the amount of compensation
for ASPI would have to be negotiated, which could potentially lead
to protracted discussions, initiation of a court case and delays
in the payment. This is a significant risk because the compensation
linked to a potential termination would be the source to meet potential
bondholders' claims in light of the voluntary put option granted under
ASPI's bond documentation in the event of a concession termination.
According to the provisions of the concession, ASPI would continue
to manage the motorway assets until payment of the compensation is received.
In light of the protracted uncertainties, Moody's will also continue
to monitor the liquidity and financial flexibility exhibited by the Atlantia
group, the continued ability to access new funding, as well
as measures aimed at preserving cash to mitigate the financial impact
of the bridge collapse.
WHAT COULD CHANGE THE RATING UP/DOWN
In light of the current review for downgrade, upward rating pressure
on Atlantia's, ASPI's and ADR's ratings is highly unlikely in the
near future. The ratings could be confirmed if there was clarity
in respect of the consequences of the collapse of the Polcevera viaduct
on the group's credit quality, which would not result in a detrimental
impact on its business and financial profile.
Downward pressure on Atlantia's and ASPI's ratings would materialise if
the collapse of the Polcevera viaduct appeared likely to result in significant
increased costs, loss of revenues, or a renegotiation of concession
terms leading to a financial profile no longer consistent with ratios
guidance (i.e. consolidated ratio of Funds From Operations
(FFO)/Debt weakening to significantly and permanently below 12%).
This ratio guidance may be increased if political risks appear to be crystallising
or if the incident appears likely to result in a further detrimental impact
on the regulatory framework applicable to Atlantia's Italian motorway
operations. Moody's cautions that, absent measures
aimed at strengthening credit metrics, Atlantia's financial
flexibility at current rating levels is very limited.
Downward pressures would also result from evidence of significantly widespread
governance issues indicating shortfalls in the group's control functions
insofar as increasing the risk of a concession termination or the imposition
of adverse measures impacting the group's risk profile.
Significant downward pressure would materialise as a consequence of the
start of a termination of ASPI's concession or materially detrimental
government actions linked to a termination scenario, with the magnitude
of any downgrade also depending on the potential size and timing of any
compensation. In addition, downward pressure on Atlantia's
and ASPI's ratings could also materialise as a consequence of (1) persistent
uncertainties and lack of progress in respect of discussions linked to
the future of the ASPI concession; (2) a material change in the terms
and conditions of key concessions or political interference; (3)
a deterioration in the liquidity profile of the group; or (4) further
negative pressure on the government of Italy's sovereign rating (Baa3
stable). In the context of Atlantia's acquisition of Abertis,
Moody's had also previously indicated that downward pressure on Atlantia's
rating would stem from a substantial change in the business risk profile
of the combined group as a result of significant involvement in higher
risk and/or greenfield projects.
With regard to ADR, the review for downgrade reflects the linkages
with its parent company Atlantia, although further contained negative
rating pressure on Atlantia's credit profile may not immediately result
in a downgrade of ADR's rating, reflecting Moody's view that there
is some delinkage from the wider group's credit quality deriving from
ADR's debt structure and terms, as well as protections included
in ADR's concession contract. Nevertheless, Moody's cautions
that significant negative pressures on Atlantia's credit profile could
still result in downward pressures on ADR's rating. More generally,
negative pressure on ADR's rating would also result from (1) a weakening
of the company's financial profile, with FFO/Debt below the high
teens in percentage terms; (2) evidence of political interference,
inconsistent implementation of the tariff-setting framework or
material changes in the terms and conditions of ADR's concession;
or (3) further negative pressure on the Italian sovereign rating.
The methodology used in rating Atlantia S.p.A. and
Autostrade per l'Italia S.p.A. was Privately Managed
Toll Roads published in October 2017. The methodology used in rating
Aeroporti di Roma S.p.A. was Privately Managed Airports
and Related Issuers published in September 2017. Please see the
Rating Methodologies page on www.moodys.com for a copy of
Atlantia S.p.A. is the holding company for a group
active in the infrastructure sector. Its main subsidiaries include
Autostrade per l'Italia S.p.A., Aeroporti di
Roma S.p.A., and Azzurra Aeroporti S.r.l.
(holding company for Aéroports de la Côte d'Azur, the
latter rated Baa2 negative). The group's total EBITDA amounted
to approximately EUR3.8 billion in 2018. Following the completion
of the acquisition of Abertis in Q4 2018, the group now has operations
in 23 countries.
Autostrade per l'Italia S.p.A. is the country's largest
operator of tolled motorways, which together with its subsidiaries,
manages a network of 3,020 km of motorways under long-term
concession agreements granted by the Italian government. The company
generated EBITDA of almost EUR2 billion in 2018.
Aeroporti di Roma S.p.A. is the concessionaire for
the Rome airport system, which reported total passenger volumes
of 49 million in 2018. ADR reported EBITDA of approximately EUR580
million in 2018
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
VP-Sr Credit Officer
Infrastructure Finance Group
Moody's Investors Service Ltd.
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Moody's Investors Service Ltd.
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
No Related Data.
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