TEXT-S&P summary: Autoroutes du Sud de la France S.A.
(The following statement was released by the rating agency)
Sept 19 -
Summary analysis -- Autoroutes du Sud de la France S.A. ----------- 12-Sep-2012
CREDIT RATING: BBB+/Stable/A-2 Country: France
Primary SIC: Bridge, tunnel, &
Mult. CUSIP6: F05334
Credit Rating History:
Local currency Foreign currency
14-Dec-2005 BBB+/A-2 BBB+/A-2
01-Apr-2003 A+/A-1 A+/A-1
The ratings on French toll road operator Autoroutes du Sud de la France S.A. (ASF) are equalized with the ratings on its sole shareholder, France-based concession and construction group VINCI S.A. (VINCI or the group; BBB+/Stable/A-2).
The equalization reflects VINCI's full ownership and control of ASF, and the strategic importance of ASF for the group's earnings and cash flows. ASF is responsible for contributing 40% of Vinci's Standard & Poor's-adjusted EBITDA. In our view, ASF supports the credit quality of VINCI, which, in addition to toll road concessions, has more cyclical contracting activities. The equalization also reflects the group's funding structure--notably debt raised by VINCI for the acquisition of ASF. This debt includes VINCI's EUR1.75 billion loan due in November 2012 (already repaid), ASF Holding's EUR1.08 billion loan maturing in December 2013 (already repaid), and the provision of a EUR2 billion internal liquidity facility to ASF by VINCI.
Disregarding the relationship with VINCI, we assess ASF's business risk profile as "excellent" and its financial risk profile as "aggressive". ASF operates the largest interconnected toll road network in France under two concessions that expire in 2027 and 2033. Although ASF is fully exposed to traffic volumes, it benefits from supportive concession agreements, high profitability, and positive free cash flow generation in the medium term. ASF has relatively high indebtedness and its dividend distribution policy consists of paying out 100% of net profit.
S&P base-case operating scenario
We believe that traffic volumes on ASF's roads in 2012 will be impaired by the weak economic environment in France. However, in our view, contractual increases in tariffs, which are inflation linked, should support revenues.
Our base-case scenario for 2012 incorporates traffic volume declines of nearly 2%. This is in line with our macroeconomic forecasts for France, and with traffic levels reported by ASF in the first half of 2012. We attach a 40% probability to a more pronounced recession taking place in Europe, which could result in greater contraction in traffic in the near term on ASF's toll road networks. Under the terms of its concessions, tariffs rose by 2.4% on Feb. 1, 2012, for all classes of vehicles.
S&P base-case cash flow and capital-structure scenario
We forecast that free operating cash flow (FOCF) in 2012 will be slightly lower than in 2011 when it was about EUR365 million year on year. This is due to an increase in ASF's capex program for the completion of the A89 motorway extension project (Lyon-Balbigny). We anticipate that ASF's capital expenditures for the fiscal year ended December 2012 will increase to approximately EUR1 billion from EUR860 million in 2011. Our forecasts indicate that funds from operations (FFO) to total debt should remain relatively stable at about 12%, owing to modest improvements in cash flows and stable levels of debt.
The short term rating on ASF is 'A-2'. We view ASF's liquidity as "strong." In the 12 months to July 31, 2013, we anticipate that sources of liquidity will cover uses of liquidity by about 1.9x and that coverage will remain in excess of 1x for the following year.
We estimate liquidity sources in the 12 months to July 31, 2013, of about EUR4.3 billion. These include:
-- EUR42 million of unrestricted cash and cash equivalents as of June 30, 2012.
-- EUR2.9 billion available under its existing committed facilities expiring in July 2017.
-- Funds from operations, which we project at about EUR1.4 billion in the 12 months to July 31, 2013.
We anticipate that ASF's liquidity needs will be about EUR2.2 billion over the period, comprising:
-- EUR869 million of debt maturities.
-- Capex and dividend requirements of about EUR1.3 billion.
Some of ASF's debt bears financial covenants, under which we anticipate ASF will maintain significant headroom. ASF's EUR500 million loans from the European Investment Bank (EIB; AAA/Negative/A-1+) carry a possible rating trigger, under which the EIB can enter into a preliminary discussion regarding a change of conditions on the debt outstanding if the rating on ASF falls below 'BBB+'. In the event that revised conditions are not agreed, the EIB could ask for early repayment of the loan.
The stable outlook on ASF mirrors that on VINCI, reflecting our view that VINCI will continue to benefit from stable cash flows generated by ASF's concession activities, which offset its more cyclical contracting businesses.
We anticipate that our ratings on ASF will evolve in line with those of Vinci. The rating on ASF would come under pressure if VINCI failed to maintain an FFO-to-debt ratio of about 20%, which we consider to be commensurate with VINCI's 'BBB+' rating. This could occur, for instance, as a result of an aggressive debt-financed acquisition, or due to a severe and prolonged double-dip recession in the global economy. This is currently not part of our base-case forecast.
There is limited rating upside at present, given Vinci's sizable capex, its acquisitive growth strategy, and the current economic environment, all of which will constrain debt reduction within the coming two years, in our opinion.
Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.
-- Vinci S.A., March 2, 2012
-- Methodology and Assumptions: Liquidity Descriptors for Global Corporate Issuers, Sept. 28, 2011
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, May 27, 2009
-- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
-- Methodology: Short-Term/Long-Term Ratings Linkage Criteria For Corporate And Sovereign Issuers, May 15, 2012
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