This reflects the acquisition by Abertis of a controlling stake in Brazilian toll-road network operator OHL Brasil (not rated), which we understand will take place at the beginning of December. We understand that Abertis will fully consolidate this company in its financials from that date. The year ending Dec. 31, 2013, will be the first full year of consolidation, which explains the significant increase in revenues forecast in that year.
Our base-case operating scenario incorporates our view that in 2012 traffic volumes on Abertis’ Spanish and French toll road networks will decline by about 10.8% and 2.5%, respectively. The following year, we anticipate that traffic volumes will continue to decline on Abertis’ Spanish toll road networks, by about 8%, whilst it will stabilize on its French toll road networks. In Latin America, we anticipate that average daily traffic will increase, although by less than last year.
Our traffic forecasts are driven by our baseline macroeconomic forecasts for each region, and take into account traffic volumes reported by Abertis in the first nine months of 2012. We attach a 40% probability to a more-pronounced recession taking place in Europe, which could result in greater contraction in traffic in the near term on Abertis’ toll road networks in Spain and France.
We forecast that adjusted EBITDA margin will weaken to about 63% in 2012 and about 62% in 2013, compared to about 64% in 2011. This incorporates margin development in the first nine months of 2012, and the lower margins of OHL Brasil compared with the remainder of the group--in 2011, OHL Brasil posted EBITDA margin of about 55%, compared to about 61% for Abertis’ Latin American toll roads and about 64% for the consolidated group.
Our base-case scenario does not include the potential integration of the Chilean toll road operators of Obrascon Huarte Lain (OHL; not rated) and the potential increase of Abertis’ stake in Spain-based satellite operator Hispasat (not rated), which could lead to consolidation of Hispasat in Abertis’ financials. This is because both transactions are at present not committed.
S&P base-case cash flow and capital-structure scenario Under our base-case cash flow and capital-structure scenario, we forecast that Standard & Poor’s adjusted funds from operations (FFO) to debt will be more than 12% in 2012, on a pro forma basis, and that it will increase to about 13% the following year. Excluding adjustments for the acquisition of OHL Brasil, adjusted FFO to debt is forecast to be about 11.4% in 2012. This reflects about a month of OHL Brasil’s earnings, and the full amount of its debt and that of intermediary holding company Participes de Brasil (not rated).
Abertis will have significant cash on balance sheet at year-end 2012, thanks to a number of asset disposals made by the group. These include the sale of 23% in France-based satellite operator Eutelsat Communications S.A. (BBB/Stable/A-2), of a 15% stake in Portuguese toll-road operator Brisa (not rated), and of 3.9% treasury stock to Brookfield Infrastructure Partners LP (BBB+/Stable/--). At the same time, the company acquired some telecommunications towers from Telefonica S.A. (BBB/Watch Neg/A-2), and acquired some of its own shares. We estimate that the net cash from these operations is about EUR1.3 billion. Abertis also agreed in February 2012 to acquire an interest in Hispasat for EUR124 million, which we understand remains subject to approvals and will likely reach financial close in 2013. We anticipate that part of the cash generated by asset sales will be used to repay debt within the next 12 months.
In our forecast credit metrics in 2012, we have excluded from surplus cash the investments required to execute transactions that have been announced although they are at present not committed and/or remain subject to approvals--namely, the acquisition of the Chilean toll road operators of OHL and of a 13% stake in Hispasat as announced in February.
We view Abertis’ liquidity position as “strong” under our criteria. We estimate that sources of liquidity for the 12 months to Sept. 30, 2013, will cover uses of liquidity by about 1.9x, and that coverage will remain in excess of 1x the following year.
We estimate liquidity sources in the year to Sept. 30, 2013, of more than EUR5.9 billion. These include:
-- Unrestricted cash and short-term liquid investments of about EUR1.2 billion as of Sept. 30, 2012;
-- EUR750 million 4.75% notes due in October 2019;
-- Funds from operations of about EUR1.6 billion over the period; and
-- About EUR2.1 billion available under bank lines which expire after Sep. 30, 2013. Abertis also has about EUR0.5 billion 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 EUR3.1 billion over the period, comprising:
-- Debt repayment of about EUR1.1 billion. This takes into account a EUR561 million bank loan which will partially extend a EUR900 million syndicated loan to July 2015 from July 2013;
-- Capital spending, acquisitions, and dividend payments of about EUR1.6 billion; and
-- About EUR350 million credit puts that could be triggered by a downgrade of Abertis by up to three notches.
In the year to September 2014, debt maturities will be about EUR0.9 billion.
Abertis expects to maintain adequate headroom under its financial covenants, which are mainly at its French subsidiary Sanef.
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 adjusted 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 adjusted FFO to debt improves to more than 12%, and 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.
Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.
-- Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012
-- “https://www.globalcreditportal.com/ratingsdirect/showArticlePage.do?object_id= 5426464&rev_id=13&sid=1025948&sind=A&”, Sept. 18, 2012
-- “https://www.globalcreditportal.com/ratingsdirect/showArticlePage.do?object_id= 6881137&rev_id=1&sid=1025948&sind=A&”, Sept. 28, 2011
-- “https://www.globalcreditportal.com/ratingsdirect/showArticlePage.do?object_id= 6587605&rev_id=9&sid=1025948&sind=A&” June 14, 2011
-- “https://www.globalcreditportal.com/ratingsdirect/showArticlePage.do?object_id= 6485398&rev_id=6&sid=1025948&sind=A&”, Feb. 16, 2011
-- “https://www.globalcreditportal.com/ratingsdirect/showArticlePage.do?object_id= 5446217&rev_id=4&sid=1025948&sind=A&”, April 15, 2008
-- “https://www.globalcreditportal.com/ratingsdirect/showArticlePage.do?object_id= 5446154&rev_id=10&sid=1025948&sind=A&”, April 15, 2008
-- “https://www.globalcreditportal.com/ratingsdirect/showArticlePage.do?object_id= 5446228&rev_id=5&sid=1025948&sind=A&”, April 15, 2008
-- “https://www.globalcreditportal.com/ratingsdirect/showArticlePage.do?object_id= 2821876&rev_id=4&sid=1025948&sind=A&”, Oct. 28, 2004
-- Spain-Based Abertis Infraestructuras ‘BBB’ Rating Affirmed Following Sovereign Downgrade; Outlook Negative, Oct. 18, 2012
-- Credit FAQ: How Sovereign Credit Quality Affects Our Ratings On European Toll Road Network Operators, Oct. 18, 2012
“https://www.globalcreditportal.com/ratingsdirect/showArticlePage.do?object_id= 7554224&rev_id=3&sid=1025948&sind=A&” Oct. 4, 2012
-- The Eurozone’s New Recession-Confirmed, Sept. 25, 2012