TEXT-S&P affirms Abertis Infraestructuras 'BBB' rating
Overview -- On Oct. 10, 2012, we lowered our long- and short-term sovereign credit ratings on the Kingdom of Spain to 'BBB-/A-3' from 'BBB+/A-2' on Oct. 10, 2012, and assigned a negative outlook. -- We consider that Spanish transport operator Abertis Infraestructuras SA has "high" country risk exposure to Spain; however, we already incorporate the company's weak operations in Spain into the rating. -- We are affirming our 'BBB' long-term corporate credit rating on Abertis. -- The negative outlook reflects our view that the weak economic environment in Spain could weigh on the improvement we forecast in Abertis' credit metrics and the debt repayment we anticipate, both of which support our current rating. It also reflects the risk that we could lower the rating if we were to downgrade Spain. Rating Action On Oct. 18, 2012, Standard & Poor's Ratings Services affirmed its 'BBB' long-term corporate credit rating on Abertis Infraestructuras S.A.. The outlook is negative. Rationale The affirmation reflects Standard & Poor's expectation that, despite the downgrade of Spain, we still expect Abertis' credit metrics to strengthen in the near term. As such, we expect adjusted funds from operation (FFO) to debt to reach above 12% in 2012 (on a pro forma basis) and gradually increase after that, and recourse debt to reduce by at least EUR0.6 billion by Dec. 31, 2013, compared to year-end 2011. (See "Spain Ratings Lowered To 'BBB-/A-3' On Mounting Economic And Political Risks; Outlook Negative," published Oct. 10, 2012, on RatingsDirect on the Global Credit Portal.) According to our criteria for rating an entity in the European Economic and Monetary Union above the sovereign, we have assessed Abertis as having "high" exposure to domestic country risks, based on: -- The transport infrastructure sector's "high" sensitivity to country risk; and -- Abertis' still material exposure of its asset base and earnings to Spain despite the increasing internationalization of its portfolio. We estimate that Spain will represent about 40% of EBITDA in 2013, taking into account the acquisition of OHL Brasil (not rated), compared to more than 50% in 2011. Under our criteria, the maximum rating differential between the sovereign and our long-term corporate credit rating on an issuer that we consider to have "high" exposure to domestic country risks is two notches if the sovereign is rated 'BBB-' or above; one notch if the sovereign is rated between 'BB+' and 'B'; and capped at 'B+' if the sovereign rating is 'B-' or lower. We currently rate Abertis one notch higher than Spain. This reflects our view of the good resilience of Abertis' corporate performance to date. The rating on Abertis is underpinned by our assessment of the group's "strong" business risk profile and of its "significant" financial risk profile. The rating is supported by Abertis' portfolio of toll road concessions, mostly located in Spain and France, which makes it the third-largest toll road network operator in Europe by network length. Although the company is exposed to traffic risk, it benefits from strong profitability and stable cash flows generated by the 3,747-kilometer network of toll roads it operates under long-term agreements. Network traffic is mature and capital expenditure (capex) needs are fairly manageable, in our view. Traffic volumes on Abertis' Spanish toll roads has seen significant declines in the last four years--average daily traffic declined by 29% between 2007 and the first half of 2012 (on a like-for-like basis). We forecast that traffic on Abertis' Spanish toll roads will contract by 10% for the full year 2012, compared to -6.5% the previous year, with a milder decline in traffic volumes likely the following year. Our assessment of Abertis' "strong" business risk profile is supported by the resilience of its earnings--increases in tariffs and cost efficiencies partially offset the impact of declines in traffic volumes, which resulted in EBITDA declining by 16% between the first half of 2007 and the first half of 2012 (on a like-for-like basis)--and by the diversification of the group's operations. Abertis' "significant" financial risk profile is supported by the asset disposals made by the group in 2012, which include the sale of 23% in France-based satellite operator Eutelsat Communications S.A. (Eutelsat; BBB/Stable/A-2) and of a 15% stake in Portuguese toll-road operator Brisa (not rated). These transactions have given rise to sizable proceeds, which we expect will be partially used to repay debt due within the next 18 months. Our assessment of Abertis' financial risk profile also incorporates the acquisition of a controlling stake in the Brazilian toll roads of Obrascon Huarte Lain (not rated). We anticipate that, as a result of the acquisition, Abertis' reported net debt at year-end 2012 will increase by about EUR1.3 billion. We forecast that, in 2013, the acquisition will add about EUR500 million to consolidated EBITDA. We also forecast that the impact on consolidated credit metrics will, all other things being equal, be slightly positive from 2013. Our base-case scenario does not incorporate any other acquisitions. We understand that the acquisition by Abertis of OHL's toll roads in Chile is still being considered by the company, although a binding agreement has not yet been reached. Liquidity We view Abertis' liquidity position as "strong" under our criteria. We estimate that sources of liquidity for the 12 months to June 30, 2013, will cover uses of liquidity by more than 2x, and that coverage will remain in excess of 1x the following year. We estimate liquidity sources in the 12 months to June 30, 2013, of more than EUR5.6 billion. These include: -- Unrestricted cash and short-term liquid investments of EUR0.9 billion as of June 30, 2012; -- EUR750 million 4.75% notes due in October 2019; -- Proceeds from asset disposals of about EUR0.3 billion, thanks to the disposal of Abertis' stake in Brisa and of some of its treasury shares to Brookfield. We also anticipate that Abertis could sell more of its treasury shares to Brookfield, although the exact amount is not determined at this stage, and hence this is not included in our liquidity calculations; -- Funds from operations of about EUR1.6 billion over the period; and -- About EUR2.1 billion available under bank lines which expire after June 30, 2013. Abertis also has EUR290 million available under bank lines which mature within the coming year. Given their short duration, these facilities are not included in our liquidity calculations. We anticipate that Abertis' liquidity needs will be about EUR2.4 billion over the period, comprising: -- Debt repayment of about EUR0.6 billion; -- Capital spending, acquisitions, and dividend payments of about EUR1.4 billion; and -- About EUR350 million credit puts that could be triggered by a downgrade of Abertis by up to three notches. In 2013, debt maturities will be about EUR1.5 billion, of which about one-third are at Abertis' subsidiaries. Abertis has already partially refinanced one of its 2013 maturities, through a EUR561 million bank loan which will partially extend a EUR900 million syndicated loan to July 2015 from July 2013. Abertis expects to maintain adequate headroom under its financial covenants, which are mainly at its French subsidiary Sanef. Following repayment of loans maturing in 2013, the financing of Sanef's parent company, Holding d'Infrastructures de Transport (HIT; not rated), no longer includes any financial covenants. Outlook The negative outlook reflects the risk that the weak economic environment in Europe could limit the improvement we forecast in Abertis' credit metrics and the repayment we anticipate of its recourse debt, both of which support our 'BBB' rating on Abertis. Our forecast ratios are at the low end of what we consider as commensurate with the current rating, providing limited headroom for underperformance. In our view, traffic volumes on Abertis' toll roads could potentially be affected by increases in fuel prices and the recent decision by the Spanish government to increase taxes. The negative outlook also reflects the risk that, under our criteria for rating an entity in the eurozone above the sovereign, we could lower our rating on Abertis if we downgrade Spain. This is because, assuming no change to Abertis' "high" exposure to domestic country risks, the maximum rating differential with the sovereign would be one notch if the sovereign is rated between 'BB+' and 'B'. We could lower the rating if FFO to debt is less than 12%, or if the gradual repayment of the group's debt is slower than we anticipate. This could occur, for example, if the weak economic environment constrains Abertis' cash flows. The adoption of a more aggressive financial policy could also put pressure on the rating, as could deterioration in the group's operating environment and/or an increase in country risk, for example due to deterioration in the macroeconomic and sovereign environment. Conversely, we could revise the outlook to stable if FFO to debt improves to more than 12%, and if the group reduces recourse debt as we anticipate. An outlook revision to stable would be consistent, in our view, with a more stable macroeconomic and sovereign environment, unless Abertis creates significant headroom in terms of credit metrics and debt repayment. Related Criteria And Research Related Criteria -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012 -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June 14, 2011 -- Principles Of Credit Ratings, Feb. 16, 2011 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 -- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008 -- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008 -- Parent/Subsidiary Links; General Principles; Subsidiaries/Joint Ventures/Nonrecourse Projects; Finance Subsidiaries; Rating Link to Parent, Oct. 28, 2004 Related Research -- Spain Ratings Lowered To 'BBB-/A-3' On Mounting Economic And Political Risks; Outlook Negative, Oct. 10, 2012 -- Toll Facilities' Credit Quality Is Holding Steady Globally Despite Bumps In The Road, Oct. 4, 2012 -- Country Risks, A Weak Economic Climate, And M&A Activity Test Resilience Of European Toll Road Network Operators, July 12, 2012 Ratings List Ratings Affirmed Abertis Infraestructuras S.A. Corporate Credit Rating BBB/Negative/-- Senior Unsecured BBB Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.