(The following statement was released by the rating agency)
Aug 22 - Fitch Ratings has downgraded Aeroports de Paris SA's (ADP)
Long-term Issuer Default Rating (IDR) and senior unsecured rating to 'A+' from
'AA-' and downgraded its Short-term IDR to 'F1' from 'F1+'.
The Outlook on both the Long-term IDR and senior unsecured rating is Stable.
The downgrade reflects that recent acquisitions of strategic stakes in
Turkish-based TAV Havalimanlar? Holding A.S. (TAV Airports, 38% stake) and TAV
Yat?r?m Holding A.S. (TAV Investment, owner of TAV Construction, 49% stake),
together with consolidation of certain off balance sheet liabilities has
significantly increased leverage (by ~EUR1bn), and represents a clear reversal
of the company's extremely conservative financial profile (itself a key driver
for last year's upgrade). Whilst many attributes of the company are considered a
strength under Fitch's Rating Criteria for Airports (November 2011), the agency
considers ADP's international acquisition strategy to be more consistent with a
TAV Airports is the leading airport operator in Turkey, operating a total of 12
airports across Turkey, Georgia, Tunisia, and Macedonia. TAV Construction is a
leading airport construction company, initially created from the Istanbul
Ataturk International Airport project. TAV Construction now has regional centres
in Cairo, Doha, Dubai, Tunisia, Bahrain, Abu Dhabi, Macedonia, Muscat and
The TAV acquisitions also appear to demonstrate how the change in regulatory
scope (dual/adjusted till from single till) has encouraged management to
diversify interest from core, regulated Paris airports operation. Fitch believes
that ADP is likely to proceed with further acquisitions, and whilst potential
exposure to markets featuring more growth and volatility than the Paris aviation
markets may grant a measure of revenue diversification, such leveraged
stakeholdings will likely weigh further on the group's resilience, which is a
paramount factor for airports rated in the 'AA' category.
The ratings reflect ADP's continued robust operational performance
(revenue-resilience), the company's strong economic regulatory framework -
albeit with increased commercial risk (revenue-price), the company's history of
successfully delivering major capex programmes, the corporate nature of the
group's funding structure and expected deterioration in debt service as a result
of moderate yet increasing financial leverage (net debt/EBITDA). In conjunction
with other criteria, Fitch used its Rating Criteria for Airports in the
analysis, as well as conducting cash flow forecasts and a sensitivity analysis.
Revenue-resilience risk is assessed as a 'Stronger' attribute based on the
history of demonstrated resilience to macroeconomic shocks. The company recorded
revenue and EBITDA increases of 0.9% and 5.5%, respectively, in 2011, on the
back of a 5.7% increase in passenger volumes (pax). ADP's ratings are further
supported by a strong 'hinterland' (the Parisian region is one of the most
densely populated and affluent in Europe). The company also benefits from dual
characteristics typically associated with both hub and origin and destination
(O&D) airports, particularly at Paris Charles-de-Gaulle airport (CDG), which
accounts for most of ADP's operating profit. In the European context, CDG is one
of the top two most resilient airports.
Fitch's revenue-price assessment results in a 'Mid-range' attribute based on a
strong regulatory price control, albeit with increased commercial risk as a
result of the move to dual/adjusted till. The overall strength of the Economic
Regulation Agreement (ERA) regime (regulated, five-year, RPI-based price
tariffs, fair return on capital, security costs fully recoverable and
re-balancing mechanism for sustained changes in traffic) remains a rating
positive, and the agency considers the 2011-2015 contract as broadly supportive.
The infrastructure development/renewal risk is assigned a 'Stronger' attribute
based on ADP's long history of delivering major capex programmes. In the
previous ERA period (2006-10), ADP delivered EUR2.9bn of total capex virtually
on time and on budget, demonstrating strong ability to manage and execute a
large capex programmes. Regulated capex for the 2011-15 period is approximately
EUR1.8bn, with a further additional EUR600m for commercial investment. ADP
completed over EUR539m of capex in 2011 with no apparentissues.
Debt structure is considered a 'Mid-Range' attribute as ADP's debt is corporate
unsecured with predominantly bullet maturities, resulting in moderate
refinancing risk. However, this is mitigated by 69% of debt being fixed rate,
with a reasonable spread of maturities. Additionally, ADP is a well-recognised
name in European debt capital markets, as demonstrated by the speedy refinancing
of the TAV acquisition facilities into medium and long-dated tranches.
Fitch's debt service risk assessment results in a 'Stronger' attribute based on
an assessment of ADP's leverage and liquidity. Despite outperforming last year's
rating case for FYE 2011 (2.4x leverage v 2.9x), after including the TAV
acquisition, pro forma leverage in Fitch's revised rating case is 3.9x (maximum)
and 3.5x (average) for 2012-2017, significantly higher than last year
(3.0x/2.7x) and marginally higher than when the company was assigned
'A+'/Stable/'F1' ratings in 2006 (3.7x). Internal liquidity remains strong (cash
and equivalents is EUR1.1bn, up from EUR808m in 2010). ADP also has access to
EUR400m of standby facilities (undrawn).
Increased financial risk and operational leverage as a result of dual/adjusted
till has been factored into Fitch's cash flow forecasts. In addition, Fitch ran
several sensitivities, including a traffic shock (-5.2% pax in 2012), capital
expenditure (capex) spike (+40% on select elements from 2013) and a combined
stress (pax shock, capex spike, enhanced commercial revenue volatility). Maximum
leverage was 5.0x, 4.1x and 7.5x respectively, which was considered consistent
with the revised ratings.
The French State ('AAA'/Stable) directly owns 52.1% of ADP. Under French law,
the state must retain at least 50.1% of ADP's shares. ADP's ratings currently do
not include any uplift for potential state support.
ADP is the second-largest European airport manager by number of annual
passengers. It operates Paris's two main airports (Charles-de-Gaulle and Orly)
and has minority stakes in TAV Airports and TAV Construction.
(Caryn Trokie, New York Ratings Unit)