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July 23 (Reuters) - (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 Stable; and
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.
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.