Feb 12 - Fitch Ratings places the 'BB' rating on Inversiones Alsacia's
USD464 million senior secured bonds due in 2018 on Rating Watch Negative. The
negative action reflects the impact of a combination of events occurred in 2012
that may adversely affect the company's future operational and financial
performance. The rating will be reviewed within the next six months, in order to
assess the progress on the concerning issues that triggered this rating action.
KEY RATING DRIVERS
--INCREASED DEPENDENCE ON DEMAND: The Operating Contract amendment of May 2012
heightened the project's risk profile by significantly increasing the linkage
between passenger demand and revenue levels. In the last two years demand has
performed below expectations. The contractual amendment includes a restated
economic equilibrium mechanism that partially mitigates such risk by
compensating to some extent, demand declines over 3%, among others. However,
compensation payments are received several months after the occurrence of a
negative impact in revenue, stressing the project's liquidity.
--HIGHER OPERATIONAL COMPLEXITY: Compared to other availability-based projects,
bus operations are logistically complex. The incorporation of additional bus
routes has heightened operational complexity. Synergies coming from Alsacia and
Express' operational merger have taken longer than expected to materialize. In
2012, operational and administrative cost was largely increased mainly due to a
series of one-time events. The risk of a continued cost escalation in the coming
years is partially mitigated by the indexed pass-through of major cost items
that is present in the formula to calculate revenues.
--ADEQUATE DEBT STRUCTURE: Tight covenants for equity distribution and
additional leverage, fixed interest rate, a cross-currency swap contracted with
highly-rated institutions, and a 6-month debt service reserve account.
--WEAKENING COVERAGES: Although coverage for the first three payments surpassed
Fitch's base projection, the amended formula to calculate revenues paired with
the cost increase during 2012 tightened financial coverage ratios to the point
that the use of reserve funds is imminent. Debt coverage performance for the
coming payments is highly uncertain given that new a negotiation round to
discuss the contractual terms with the Government is scheduled for April 2013.
--CAPEX RESERVES ARE BELOW INDUSTRY STARDARDS: In 2012, ALSACIA made important
investments in overhauling a portion of its bus fleet. However, given such
investment and the fact that current fleet has a remaining life of 10 years
average, Fitch does not foresee infrastructure renewal risk as material.
KEY RATING SENSITIVITIES
--New contractual terms following the April 2013 negotiations with the Chilean
Ministry of Transportation and Telecommunications (MTT) that could lead to a
negative impact on the company's operations and cash available for debt service.
--Liquidity reduction resulting in DSCR under 1.00 times (x), which would imply
the Debt Service Reserve Account (DSRA) was not fulfilled, but used again.
--End of governmental subsidy could negatively impact the system's and the
company's financial position.
The notes are secured by a first lien interest of total revenues and contract
rights, as well as all assets owned by Alsacia and Express, excluding a bus
terminal located in Huachuraba.
During 2012, with information as of the third quarter, Alsacia's expenses grew
higher than revenues, resulting in a 24% contraction of Ebitda. As a result,
resources from the DSRA will be needed to partially fund the coming debt payment
scheduled for February 2013.
Lower-than-expected revenue growth, albeit improvements to evasion control and
operation indexes, came basically from the restatement of the formula as
established in the Operational Agreements signed between the operators and the
MTT and effective starting May 1, 2012. Revenues are now more linked and
sensitive to demand performance, which has been contracting since the end of
2011. In addition, the contractual amendments also include that those transfers
across the services of a single operator will now account as one passenger only.
Demand for Alsacia and Express slightly recovered in the last quarter of the
year, and their performance generally follows that of the whole Transantiago
According to Alsacia, lower demand was mainly driven by the numerous holidays in
Chile during 2012, the greater competition from the Metro lines, and an
increased use of automobiles.
Although the revenue volatility has potentially increased, the Operating
Agreement comprises two economic equilibrium mechanisms to offset the companies
for demand losses over 3%. The mechanisms include annual compensation payments
and biannual adjustments to the amount the MTT pays per passenger using the
operators' services. The first compensation payment is scheduled for May 2013,
and the company expects to partially use its proceeds to replenish the DSRA. The
annual frequency of these payments is likely to further stress the project's
In addition to the contractual compensation mechanisms, in 2012 the MTT declared
its intention to reimburse some of the Transantiago operators for the
Technical-Operative Reserve they contributed with in 2005. Alsacia already
received CLP 9,090 million, while Express will be able to receive CLP 29,432
million in as much as five installments between January 2014 and October 2018.
On the expense side, in 2012 the company faced a series of extraordinary
one-time costs, such as: a heavy bus overhaul program that was expected in a
later period, the temporary outsourcing of the recently taken over Feeder D, the
external advisory services needed to restructure the operating plans, and the
restructuring of the Union Agreements that were restated and extended for three
and four more years.
Some of the additional and recurring expenditures are the engagement of 400
inspectors in charge of improving evasion control, and supplementary drivers and
maintenance personnel to properly operate Feeder D. Since most of the deviation
was due to the single-time incidents, it is Fitch's belief that costs will
normalize within the few coming months.
Regarding the system's subsidy that ends in 2014, aiming to stop fares'
escalation, in 2012 the Government started the process to obtain a subsidy of
USD 750 million per year, to be approved until 2022. The process is at a very
advanced stage, and expected to be resolved by the first semester of 2013. While
the subsidy termination is a potential risk, Fitch considers it is very unlike
to occur, given the fact that Transantiago is a top-priority project for the
country, as has been demonstrated in the past.
Recently, the MTT announced in April 2013 there will be another round of
negotiations with the operators for possibly re-adjusting the Operational
Contracts. The direction and result of such discussions are still unknown but
are likely to strongly determine Alsacia's financial performance.
Fitch believes that, if the current terms of the Operation Agreement continue
and demand does not recover in the short term, Alsacia will have increased
pressure to keep costs controlled at or under budgeted levels, in order to reach
at least the 22% Ebitda averaged in 2008-2011, and still be able to face its
increasing debt obligations.
Fitch Base Case assumed demand stays at current (2012) level while cost
increases 3% over budget to reach 22% Ebitda average over the 2013-2018
projected horizon. DSCR results in 1.03x minimum and 1.10x average.
Fitch Stress Case considered demand contracts 5% in 2013 and then stays stable,
while cost increases 5% over budget to reach 20% Ebitda average. DSCR results in
0.93x minimum and 1.02x average. Under this scenario, funds from the DSRA have
to be called several times.
Alsacia and Express are two of the top bus concessionaires of the Transantiago
System, which provides mass urban bus/metro transportation services to the City
of Santiago, in Chile since 2005, and is regulated by the MTT. The transaction
consisted of the acquisition by Alsacia of the remaining shares of Express, and
the refinancing of all the existing debt of both concessionaires.
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure & Project Finance' (July 11, 2012);
--'Rating Criteria for Availability-Based Infrastructure Projects' (June 19,
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Availability-Based Projects