(Repeat for additional subscribers)
July 23 (The following statement was released by the rating agency)
Fitch Ratings has affirmed the ratings of AMT
Management Limited's (AMT) senior secured debt facilities as follows:
AUD300m Tranche A medium term notes due November 2020: affirmed at 'A-'; Outlook
AUD225m Tranche B loan due July 2018: affirmed at 'A-'; Outlook Stable.
The ratings reflect the importance of the Eastern Distributor ("ED") as a
critical element within the Sydney orbital road network, and by the expected
ability of the project to service debt comfortably even in conservative downside
scenarios. ED is a mature toll road with proven traffic, operated by Airport
Motorway Group (AMG) through a lengthy concession that extends to 2048. AMT, in
its capacity as responsible entity and trustee of the Airport Motorway Trust, is
the borrowing entity for AMG.
KEY RATING DRIVERS
Toll revenue for the year to 30 June 2014 (FY14) was AUD105.3m, up 4.8% from the
prior year. The higher revenue was due to toll increases along with 2.3% growth
in average daily traffic, which was an increase on the prior two years when
traffic growth was below 1%. The prior two years' traffic was likely affected by
construction on other roads in the Sydney orbital network that connect to it
(including the M2 and M5 roads) and from slower economic growth in the overall
economy in 2013. The M2 expansion project is now complete and economic growth
has picked up in 2014, both of which should benefit ED traffic numbers. In
Fitch's adjusted based case, traffic growth is expected to continue at around 2%
over the medium-term. The volume risk attribute is assessed as "midrange".
AMT has continued to raise tolls at the maximum level allowed under the
concession agreement, with a compound annual growth rate (CAGR) of around 5%
since operations commenced. Previously, toll prices were escalated in increments
of AUD0.50, which resulted in flattening of demand growth following each
increase. In November 2013, however, tolling moved to quarterly increases
(facilitated by fully electronic tolling), eliminating that volatility. The
concession agreement allows toll increases of at least 1% per quarter, which is
notably above inflation expectations and may impact long -term volume growth if
AMT continues its strategy of maximising toll rate increases. Tolls currently
stand at AUD6.29 for cars (Class A) and AUD12.58 for other vehicles (Class B).
Price risk is assessed as "midrange".
While typical of the Australian market, the bullet debt structure is a weaker
attribute compared to other Fitch-monitored toll roads globally. However, AMT
and its main sponsor, Transurban (whose financing arm is Transurban Finance
Company Pty Limited ('A-'/Stable)) have proven track records of refinancing debt
well in advance of maturity. The AUD295m of bank debt due to mature in July 2014
was refinanced more than six months in advance with a capital markets issue,
extending the tenor from three to seven years and lowering the cost of
borrowing. AMT also benefits from Transurban's strong global banking
relationships. Structural features include: medium-term interest rate hedging
requirements; a higher interest coverage cash lock-up than in the initial loan
package; and a major maintenance letter of credit. The debt structure attribute
is assessed as "midrange".
AMT has a demonstrated ability to withstand downside events and maintain its
robust historical interest-only coverage ratio (ICR) above 2.0x. Coverage ratios
have declined somewhat as the cash flows from infrastructure bonds have run off,
but the minimum ICR in Fitch's Rating Case is still fairly strong at 1.86. The
Rating Case assumes, in particular, toll rate increases of 4% per year, long
term traffic growth of 1% resulting notably from adverse price elasticity, and
moderate stresses to operating, maintenance and interest costs. The Rating Case
concession life coverage ratio (CLCR) of 3.24 and average debt service coverage
ratio (DSCR), on a notional 25-year amortisation starting in 2014, of 3.09,
benefit from the lengthy concession period. The debt service risk attribute is
assessed as "stronger".
The ED's major maintenance requirements are well managed by Transurban, with the
costs fully funded by cash flow from operations. Management does not expect to
develop ED above its current capacity of 77,000 vehicles per day, but plan to
continue maximising revenues from the existing traffic to meet debt service. The
infrastructure development and renewal attribute is assessed as "stronger".
AMT's ratings would come under downward pressure in the event that leverage in
Fitch's Rating Case was forecast to be still above 6x by 2016 or if CLCR
declines below 3.5x.