TEXT-Fitch:Austerity has limited direct impact on EU toll roads

(The following statement was released by the rating agency)

July 17 - Fitch Ratings says in a new report that austerity measures have had only a limited impact on EU toll roads. European governments have implemented austerity-related policies over the past 18 months or so that have hit toll roads. Large networks, including Atlantia S.p.A., Abertis Infraestructuras, S.A., Brisa Concessao Rodoviaria, S.A. (BCR, or Brisa), Autoroutes Paris Rhin Rhone (APRR), and Vinci Autoroutes, have been affected, but not enough to materially weigh on the ratings.

"European toll roads are suffering more from low GDP growth, rising unemployment and high fuel prices than from the austerity measures directed towards toll roads," says Nicolas Painvin, Senior Director and head of Transport and Social Infrastructure in EMEA at Fitch. However, relatively high levels of inflation are partly offsetting the revenue losses through the frequent CPI indexation of toll rates.

As austerity is imposed, domestic demand and disposable income shrink. Unemployment rises and weighs on commuter traffic. Anticipation of higher taxes or lower revenues reduce discretionary travel. "The 2012 recession in southern European countries may prove more harmful for toll roads than the 2008-2009 episode," says Painvin. "Indeed, the economic downturn has now diffused to the core clientele of toll roads."

Taxes increase journey costs but only marginally affect large and mature networks. Increased tolls, reflecting a pass through of tax hikes have been observed in France and Italy. More generally in Europe, fuel taxes have increased mainly through the VAT, a proportional tax rising along the higher fuel prices. The higher journey costs risk lowering traffic. However, it will probably have a marginal effect on mature networks, considering their strong market power and low price elasticity. Concessions with a weaker market position are likely to be harder hit.

Public payment concessions (PPPs) in Southern Europe, some of which Fitch maintains private ratings on, have been suffering from increased counterparty risk. Many of these private ratings have experienced multi-notch downgrades after the downgrades of the public sector entities from which the entire projects' cash flows depend.

Grantors are experiencing weakening financial positions. Some shadow tolls or availability-based standalone concessions are facing increased counterparty risk with respect to their grantors. This applies particularly to privately-rated transactions in Spain and Portugal and Greece, which are experiencing financial stress and increasing payment delays.

Extension of user-pay schemes is favourable for existing networks. Some previously free-to-use roads in Portugal have recently been converted to toll roads, while the use of satellite tolling systems for trucks across Europe has become more widespread, with France set to implement it in 2013. These changes may be positive for existing toll road concessions, which benefit from a reduction in toll-free competition.

The report, entitled 'Austerity Has Indirect Effect on European Toll Roads' is available at www.fitchratings.com.

Link to Fitch Ratings' Report: Austerity Has Indirect Effect on European Toll Roads

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