European Infrastructure Finance Yearbook - Investing In Bonds ...

PROJECT FINANCE/PUBLIC-PRIVATE PARTNERSHIPS
134 ■ NOVEMBER 2007
sensitive to interest rate increases. This is a
key consideration, given the existing
refinancing risk.
The following strengths offset these risks at the
‘BBB-’ level:
• APRR benefits from strong and recurring
cash flow generation, stemming largely from
a mature and very large toll road network.
APRR’s concessions are regulated by
supportive agreements, including
management contracts that guarantee a
minimum, inflation-linked toll rate increase
for each five-year period.
• APRR benefits from the combined
experience of Macquarie Bank Ltd.
(A/Stable/A-1) and Eiffage in the financing,
construction, and operation of toll roads
worldwide, although this is Macquarie’s first
major investment in French toll roads.
• APRR has a strong track record in toll road
operation. The project is resilient to a
number of downside scenarios, at the same
time as being able to service debt at both
APRR and Eiffarie. A zero traffic growth
scenario results in a minimum debt service
coverage ratio of 1.06x.
• APRR is the third-largest toll-road operator
in Europe, with a network of 2,215 km in
service out of 2,279 km under concession
until 2032, after Italy-based Atlantia SpA
(A/Negative/A-1) and French peer
Autoroutes du Sud de la France S.A. (ASF;
BBB+/Negative/A-2). APRR’s 2006 turnover
and EBITDA were €1.67 billion and €1.07
billion, respectively, up 6.3% and 9.7% on
2005 and in line with expectations.
As at Dec. 31, 2006, APRR complied with
the financial covenants set by the state as part of
the privatization.
The APRR network has shown moderate, but
below budget, traffic growth of 1.3% overall for
the 12 months to end-December 2006 compared
with the same period of the previous year. This
remains weaker relative to APRR’s peers ASF and
Cofiroute (BBB+/Negative/A-2), but similar to
traffic growth reported by French toll road
operator Sanef (A/Negative/A-1) for the period.
Poor weather conditions in the first quarter of the
year and a heat wave in July that affected light
vehicle traffic were responsible for lower-than-
STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK
expected traffic growth, somewhat offset by an
upturn in the French economy and completion of
repair work at the Epine and Fréjus tunnels.
Overall revenues grew by 6.3% in 2006 year on
year, exceeding budgeted targets by about €24
million. Improvement in total revenues reflected
the contractual increase of rates in October 2005
and 2006, as well as a rebound in heavy traffic
volumes and reduced discount rates for heavy
vehicle subscribers. EBITDA margins improved by
2% in 2006 compared with the previous year. We
expect EBITDA margins to continue improving by
1% per year over the short term based on similar
traffic growth and continued implementation of
cost controls and operational efficiency.
Traffic growth for the first quarter of 2007 was
3.5% above that of the same period the previous
year due to better weather and macroeconomic
conditions.
Outlook
The stable outlook reflects our expectation of
continued stable, recurring cash flows from the
road network under the concession agreements.
The ratings could be lowered if one of the key
sponsors gains a dominant position in the
structure (in which case the ring-fencing would no
longer hold), traffic falls consistently below our
base case assumptions, or if the refinancing does
not proceed as assumed in the base case. Upgrade
potential is limited. Eiffage is subject to a takeover
bid by its major shareholder Sacyr, a Spanish
construction company, but we do not expect any
change of ownership to affect the structure and
working of the APRR group.
Concession Financing Factors
The structure implemented following privatization
led us to adopt a concession financing approach
to APRR, rather than the previous corporate
approach.
This was due to:
• Compliance with Standard & Poor’s criteria
for special-purpose entities at the level of the
Eiffage and Macquarie consortium, which
owns the majority of APRR after
privatization;
• Restrictions on individual sponsor control in
APRR, owing to Eiffage and Macquarie’s
roughly equal shareholder ownership;
• Commitment of the two shareholders to
maintaining their equity interests in the