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Global Credit Research - 02 Mar 2011
Approximately BRL450 million of debt securities affected
Sao Paulo, March 02, 2011 -- Moody's America Latina (Moody's) placed on review for possible downgrade
the Ba2 rating on the global scale and the A1.br ratings on the
Brazilian national scale of the BRL450 million senior unsecured debentures
issued by Invepar and guaranteed by its operating subsidiary Linha Amarela
S.A. (Lamsa). At the same time, Moody's
affirmed Invepar's corporate family ratings of Ba3 and A2.br
and Metro Rio's Issuer Ratings of Ba3 and A3.br and changed
the outlook for those ratings to negative from stable.
The review was prompted by Moody's perception of increased credit
risk at the subsidiary guarantor, Lamsa, as a result of additional
investment requirements through 2012. In spite of long-term
compensations provided by the amendment of its concession agreement,
the unexpected increase in Lamsa's leverage creates additional near-term
pressure on the group's already high consolidated leverage and weak
Invepar's operating performance to date has been moderately weaker
than Moody's initial expectation and leverage is likely to remain
high in the medium term to support its significant investment plans,
which may challenge the company's ability to achieve the credit
metrics required for the Ba3 rating category. Nevertheless,
Moody's has affirmed Invepar's corporate family ratings and
Metro Rio's issuer ratings given the strong evidence of financial
support from its shareholders over the last couple years.
The negative outlook reflects Moody's expectation that prolonged
high leverage coupled with an inadequate liquidity profile in the current
environment of rising interest rates in Brazil could lead to higher debt
costs, weaker coverage ratios for the rating category and an increasing
likelihood of a possible covenant violation in the near term.
Ratings under review for downgrade include:
.BRL450 million senior unsecured debentures issued by Invepar
and guaranteed by Linha Amarela S.A.(Lamsa): Ba2/A1.br
The following ratings were affirmed with negative outlook:
Issuer: Invest. E Part. Em Infra-Estr S.A.
.Corporate Family Ratings: Ba3 (global scale) / A2.br
(Brazil national scale)
Issuer: Concessao Metroviaria Rio de Janeiro S/A (Metro Rio)
...Issuer Ratings: Ba3 /A3.br
Invepar's Ba3 and A2.br corporate family ratings reflect
the inherently stable and predictable cash flow of its subsidiaries,
which are supported by long-term concession contracts for toll
roads and subway services. The ratings also reflect the strengthened
capital structure of Invepar following the issuance of BRL799 million
in new equity in 2009 and an additional BRL375 million in 2010,
which is evidence of the strong financial support Invepar has from its
shareholders; however, the ratings are currently pressured
by the significant amount of debt due in the near term and the group's
high leverage when compared to its local peers (illustrated by a Funds
from Operations (FFO)-to-Debt ratio adjusted according to
Moody's standard adjustments of 6.2% for the last
twelve months ended September 30, 2010). Other factors pressuring
Invepar's ratings include its rather ambitious business plan, not
only within the scope of its existing businesses that calls for investments
of approximately BRL2.4 billion over the next five years,
but also for the potential new ventures in the infrastructure sector.
Thus, the ratings reflect a high dependence of new equity capital
from the shareholders in a timely manner over the next several years.
The Ba2 and A1.br ratings on Invepar's BRL450 million debentures
are one notch higher than the corporate family ratings to reflect the
solid cash flow of Lamsa, which is supported by a long-term
concession contract for toll road services in the city of Rio de Janeiro.
Lamsa is not only the guarantor of these debentures, but its dividends
are also the primary source of cash to meet the debt service at the level
of the holding company in the short term. The other two major sources
of cash to the Invepar holding company, the operating subsidiaries
Metro Rio and Concessionaria Auto Raposo Tavares S.A. (Cart)
are involved in significant capital expenditure programs and Moody's
does not expect these two companies to distribute dividends before 2019.
To date, Lamsa has exhibited strong credit metrics for the rating
category and a relatively long track record since 1998 of improving operating
performance, but the company has recently engaged in additional
investments for road improvements that will translate into lower free
cash flows in the near term. Moody's will evaluate within
the next three months if the one-notch difference is adequate in
the face of the expected additional leverage associated with these investments.
On May 14, 2010, Lamsa signed an amendment to its concession
agreement, whereby the City Government of Rio de Janeiro granted
an additional 15 years in the term of this concession, extending
it until January 2037. In exchange, Lamsa committed to investing
BRL258 million in road improvements through 2012. In order to fully
restore its financial equilibrium based on an internal rate of return
(IRR) of 10.9%, the concessionaire has also negotiated
a tariff increase of 2.32% per year from June 2012 through
June 2015, in addition to the annual pass through of inflation.
In spite of these compensations, the unexpected increase in Lamsa's
leverage creates additional pressure on the group's consolidated
leverage and liquidity position for the short term. The ultimate
magnitude of an increase in leverage at Lamsa could potentially violate
the financial covenants embedded in the indenture of Invepar's debentures,
including a maximum Net Debt-to-EBITDA ratio of 2.0x
for Lamsa and 5.8x for the Invepar consolidated company in 2010
(5.0x in 2011).
Further potential cash flow pressures on the subsidiary guarantor,
Lamsa, also constrain the debenture's ratings because of the
lack of adequate ring-fencing through strong contractual provisions
that prevent Lamsa from granting intercompany loans. Moody's
notes that intercompany loans within the Invepar could be used more frequently.
While this practice reduces the cost of debt for Invepar on a consolidated
basis, it increases the potential for cross-defaults,
which brings the risks of financially weaker subsidiaries into the credit
profile of those subsidiaries that would otherwise have a higher rating.
Metro Rio's Ba3 and A3.br ratings also reflect the stable and predictable
nature of the cash flow derived from its long-term concession contract
and a solid track record of operating performance along with the implicit
support of financially strong shareholders. The ratings are pressured
by its highly leveraged capital structure (evidenced by a FFO-to-Debt
ratio adjusted according to Moody's standard adjustments of just
0.5% for the last twelve months as of September 30,
2010), and the ongoing risks associated with raising sufficient
and timely long-term capital to fund its sizeable capital expenditure
program of approximately BRL700 million over the next five years.
Metro Rio experienced a significant increase in leverage as a result of
the merger with Megapar in September 2009. The high leverage represents
an additional risk since there are loans with the BNDES that include a
financial covenant of EBITDA to Net interest expense higher than 2.0x.
The risk of potential political interference with respect to fare adjustments
and/or alterations to the current expansion plans to Rio's existing mass
transportation system further constrain Metro Rio ratings.
Despite some recent improvements, Invepar's consolidated liquidity
profile remains weak in the face of the sizeable near-term debt
maturities and significant expected cash outflows associated with its
capital expenditure requirements. Like most Brazilian companies,
Invepar does not have committed banking facility to fund significant unexpected
cash disbursements. At September 30, 2010, Invepar
reported consolidated short-term debt of BRL1.3 billion
(including concession liabilities) vis-à-vis a cash
position of BRL397 million. These maturities are expected to decrease
during the first quarter of 2011 as a result of some successful refinancing
activities. These included a BRL1.05 billion long-term
loan approved by the BNDES last December to support Cart's capital
expenditures (of which the first disbursement occurred last month replacing
a bridge loan from the BNDES of approximately BRL261 million) and the
issuance of a 2-year BRL400 million debenture by this subsidiary
in January 2011. Additionally, some BRL230 million of Metro
Rio's outstanding commercial paper has been amortized with the release
of restricted cash on the balance sheet. Nevertheless, the
overall debt maturity profile remains inadequate in relation to Invepar's
estimated investments of approximately BRL2.4 billion over the
next five years. The support of shareholders through capital injections
and debt acquisition in the past has partially tempered this weak liquidity
Invepar's operating performance to date has been moderately weaker
than Moody's initial expectation given the delays experienced in
the implementation of new toll plazas at Cart and some technical difficulties
in starting operations at the interconnection of lines 1 and 2 of Metro
Rio. Going forward, Invepar's consolidated operating
cash flows are likely to gradually increase as the new investments mature.
Despite Moody's expectation that the strong financial support of Invepar's
shareholders will continue, refinancing risk remains a major credit
concern which has prompted the negative outlook; however, the
outlook could be stabilized should Invepar obtain adequate long-term
funding to finance its investment programs over the next 12 to 18 months
and materially improve its overall liquidity position.
Downward rating pressure will develop if Moody's perceives refinancing
risk materially increasing or if there is a sustained deterioration in
credit metrics so that Invepar's consolidated FFO-to-debt
ratio, adjusted according to Moody's standard adjustments,
remains below 8% and its consolidated interest coverage ratio stays
below 2.0x for an extended period. Any reduction in the
perceived level of support from shareholders could also trigger a downgrade.
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
The principal methodology used in rating Invepar and MetroRio 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.
Investimentos e Participações em Infraestrutura S.A.
(Invepar) is a holding company controlled by three of the largest Brazilian
pension funds (PREVI, FUNCEF and PETROS) and the construction company
OAS (unrated). Invepar was created in March 2000 to invest in other
companies in the infrastructure segment. Its current portfolio
of concessions consists of three toll roads: Linha Amarela S.A.
(Lamsa), Concessionária Auto Raposo Tavares S.A.(Cart)
and Concessionária Litoral Norte S.A. (CLN),
and one subway concession operated by Concessão Metroviária
Rio de Janeiro S/A (Metrô Rio). Invepar also participates
in a joint venture with Construtora Norberto Odebrecht S.A.
(Baa3/Aa1.br; Stable) on the recently auctioned BA-093
road system in Bahia. Invepar reported consolidated net revenues
of BRL695 million (USD390 million) and EBITDA of BRL249 million (USD140
million) in the last twelve months ended September 30, 2010.
Metro Rio accounted for 54% of the revenues and 50% of the
Infrastructure Finance Group
Moody's America Latina Ltda.
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
Moody's America Latina Ltda.
Moodys places Invepar's debentures under review for possible downgrade; corporate family ratings affirmed with negative outlook
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