European Infrastructure Finance Yearbook - Investing In Bonds ...

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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
consortium for at least two years (Eiffage has committed for 10 years); and • The sponsors’ commitment to ensuring the single business focus of APRR. The key supporting factor for our concession financing approach is that the sponsors’ respective control of Eiffarie and APRR is roughly balanced. If this were to change--for example through one sponsor selling its equity interest to the other, leading to majority ownership by a single sponsor--we would likely review our rating approach to the structure. ■ STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK PROJECT FINANCE/PUBLIC-PRIVATE PARTNERSHIPS NOVEMBER 2007 ■ 135
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November 2007 Infrastructure Financ
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CONTENTS Introduction STANDARD & PO
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INTRODUCTION 2007: New Challenges A
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ject Finance Rating Distribution: I
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COMMENTARY Publication Date: Sept.
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(Bil. ) 140 120 100 80 60 40 20 0 F
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UTILITIES EUROPEAN UTILITIES Once a
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UTILITIES approach to ownership unb
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UTILITIES 16 ■ NOVEMBER 2007 tran
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UTILITIES 18 ■ NOVEMBER 2007 Limi
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UTILITIES 24 ■ NOVEMBER 2007 Tabl
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UTILITIES 28 ■ NOVEMBER 2007 pres
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UTILITIES 30 ■ NOVEMBER 2007 Tabl
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UTILITIES Publication Date: Aug. 29
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UTILITIES Publication Date: Nov. 12
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UTILITIES Publication Date: Sept. 3
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UTILITIES Publication Date: Aug. 17
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UTILITIES Publication Date: Sept. 3
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UTILITIES 50 ■ NOVEMBER 2007 stro
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