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TEXT-S&P cuts Abertis Infrastructuras ratings to 'BBB'
May 30, 2012 / 4:12 PM / 5 years ago

TEXT-S&P cuts Abertis Infrastructuras ratings to 'BBB'

Overview	
     -- We placed our rating on Abertis Infraestructuras S.A. (Abertis)
on CreditWatch negative on April 30, 2012, reflecting our view of the risks of 	
the weakening economic environment in Spain and the effect of a potential 	
acquisition.	
     -- We have now reassessed its business risk profile as "strong" 	
(previously "excellent") in light of the volatility in traffic volumes 	
experienced by its Spanish toll road network operators.	
     -- As a result, we are lowering our long-term corporate credit rating on 	
Abertis to 'BBB' from 'BBB+'.	
     -- The CreditWatch negative placement primarily reflects the risk that 	
the potential acquisition could lead us to further downgrade Abertis by one 	
notch.	
	
Rating Action	
On May 30, 2012, Standard & Poor's Ratings Services lowered its long-term 	
corporate credit and senior unsecured debt ratings on Spain-based 	
infrastructure operator Abertis Infraestructuras (Abertis) to 'BBB' from 	
'BBB+'. The ratings remain on CreditWatch, where they were placed with 	
negative implications on April 30, 2012.	
	
Rationale	
The downgrade reflects the downward revision of our assessment of Abertis' 	
business risk profile to "strong" from "excellent." This factors in our view 	
that the level of volatility in traffic volumes on Abertis' Spanish toll 	
roads, is, and will continue to be, greater than what we consider to be 	
consistent with an "excellent" business risk profile. Average daily traffic 	
declined by 24% between 2007 and 2011. We forecast that, in 2012, traffic on 	
Abertis' Spanish toll roads will contract by a further 9%, with a milder 	
decline in traffic volumes the following year. We also attach a 40% 	
probability to a more pronounced recession taking place, which could result in 	
greater contraction in traffic in the near term. Greater traffic volatility on 	
Abertis' Spanish toll roads has been driven, in our view, by the very weak 	
economic environment in Spain, the country's very high unemployment rate, and 	
adverse population trends. In addition, toll road network operators in Spain 	
face greater competition from non-toll roads than their French and Italian 	
counterparts, which in our view exposes them to greater traffic risk. 	
	
At the consolidated group level, we anticipate that the decline in traffic 	
volumes in Spain will be partially offset by the performance of Abertis' 	
international toll roads, and that tariff increases and cost savings will 	
continue to support earnings. However, when assessing the business risk 	
profile of Abertis, we take into account the reliance of the company on its 	
Spanish toll road operations to service its recourse debt, which is 	
concentrated at the parent company level. Over the past three years, about 80% 	
of the dividends received by the parent company originated from Spanish toll 	
roads. Spanish toll road concessionaire Acesa, whose concession terminates in 	
2021, was the largest contributor, contributing 70% of the EUR1 billion 	
dividends received by Abertis to service its recourse debt, with another EUR75 	
million originating from Aumar, whose concession matures in 2019.	
	
We have revised upward our assessment of Abertis' financial risk profile to 	
"significant" from "aggressive." This reflects our forecast that FFO to debt 	
will be more than 12% in 2012, and gradually increase thereafter. Abertis 	
disposed of part of its stake in Eutelsat, the France-based satellite 	
communications company, in 2012, which together with the disposal of its 	
interest in a tunnel in Spain, generated proceeds of about EUR1 billion. At the 	
same time, the company increased its interest in Hispasat, acquired some 	
telecommunications towers from Telefonica, and acquired some of its own 	
shares. We estimate that the net cash from these operations is in the range of 	
EUR200 million-EUR250 million. In addition, we understand that Abertis' stake in	
Brisa (valued at about EUR230 million), if sold, could take the net cash 	
available from asset disposals to about EUR450 million-EUR500 million. We 	
anticipate that part of this cash will be used to repay debt.	
	
In our view, Abertis will need to amortize the majority of its recourse debt 	
within ten years. This is because the two most cash-generative concessions of 	
Abertis, which contributed the vast majority of the dividends that service 	
Abertis' recourse debt, will mature within that period. While Abertis' other 	
assets have been increasingly contributing to the cash flows available to 	
service the group's recourse debt, we believe that, in the near term, the 	
Spanish toll roads will continue to generate the majority of the cash 	
available to repay debt. The 'BBB' rating incorporates a gradual repayment of 	
recourse debt as the remaining life of Abertis' concessions reduces. This is 	
consistent, in our view, with repayment of at least EUR300 million-EUR350
million 	
of recourse debt per year in the near term.	
	
The ratings remain on CreditWatch negative. This reflects our view of the risk 	
that the potential integration in Abertis of the Brazilian and Chilean toll 	
road operators of Obrascon Huarte Lain (OHL; not rated), which remains subject 	
to board approval, could result in a one-notch downgrade if it constrains the 	
credit metrics of Abertis. This will, however, depend on Abertis' financing of 	
the acquisition. 	
	
The proposed integration, which we estimate would represent about 15% of pro 	
forma consolidated EBITDA post transaction, would result in better geographic 	
diversification for Abertis, and reinforce the contribution that toll roads 	
make to the group, both in terms of earnings and in terms of cash flows 	
servicing recourse debt. The proposed integration would likely be neutral in 	
terms of Abertis' business risk profile. This is because the benefit of 	
diversification would, in our view, be offset by the higher risk of the 	
integrated concessions compared to Abertis' toll roads in Europe. We base our 	
view on the fact that the proposed integration exposes Abertis to:	
     -- An emerging economy, with a soft currency that could suffer 	
depreciation vis-a-vis the euro. This could, in our view, impair the dividend 	
flow generated by the acquired operations. 	
     -- A relatively dynamic regulatory environment in Brazil, where the bulk 	
of the operations to be integrated are located. Unilateral changes to 	
concessions are allowed in Brazil, although appropriate remuneration must be 	
provided to the toll road operator to restore the concession's economic 	
balance.	
     -- A greater proportion of heavy vehicle traffic, which we view as more 	
volatile than light vehicle traffic. Heavy vehicle traffic volumes account for 	
more than 30% of total traffic volumes on the roads to be integrated, compared 	
with 15% on average on Abertis' network.	
	
Liquidity	
We view Abertis' liquidity position as "strong" under our criteria. We 	
estimate that sources of liquidity for the 12 months to March 31, 2013, will 	
cover uses of liquidity by about 1.5x, and that coverage will remain in excess 	
of 1x the following year. 	
	
We estimate liquidity sources in the 12 months to March 31, 2013, of about 	
EUR4.7 billion. These include:	
     -- Unrestricted cash and short-term liquid investments of EUR1.2 billion as	
of March 31, 2012;	
     -- Cash flow from operations in 2012 of about EUR1.5 billion over the 	
period; and	
     -- About EUR2 billion available under bank lines which expire after March 	
31, 2013. Abertis also has EUR230 million available under bank lines, which 	
mature within the coming year, and which therefore are not included in our 	
liquidity calculations.	
	
We anticipate that Abertis' liquidity needs will be about EUR2.9 billion over 	
the period, comprising:	
     -- Debt maturities of about EUR0.9 billion; 	
     -- Capital spending, treasury share acquisition, and dividend payments of 	
about EUR1.7 billion; and	
     -- About EUR350 million credit puts that could be triggered by a downgrade 	
of Abertis by up to three notches.	
	
We do not anticipate that Abertis will make any further contribution to the 	
Radiales ring road project in Madrid. 	
	
Abertis expects that its Sanef subsidiary will maintain adequate headroom 	
under its financial covenants. Following repayment of the loans maturing in 	
2013, financing of Abertis' subsidiary HIT no longer includes any financial 	
covenants.	
	
CreditWatch 	
We aim to resolve the CreditWatch placement on Abertis within 90 days, or 	
sooner if possible, following a decision on the acquisition by Abertis of 	
OHL's toll road operators in Brazil and Chile. 	
	
We could lower our ratings on Abertis by one notch if the acquisition is 	
approved and we forecast that FFO to debt will be less than 12% in the near 	
term, or if the acquisition negatively affects the company's ability to 	
gradually repay its recourse debt.	
	
We could affirm the ratings if the acquisition is not approved, or if it is 	
approved and we forecast that post acquisition FFO to debt will be more than 	
12% and that recourse debt is repaid by at least EUR300 million-EUR350 million
per 	
year in 2012 and 2013.	
	
Related Criteria And Research	
All articles listed below are available on RatingsDirect on the Global Credit 	
Portal, unless otherwise stated.	
 	
     -- Methodology: Short Term/Long Term Ratings Linkage Criteria for 	
Corporate and Sovereign Issuers, May 15, 2012	
     -- Methodology And Assumptions: Liquidity Descriptors For Global 	
Corporate Issuers, Sept. 28, 2011 	
     -- General Criteria: Nonsovereign Ratings That Exceed EMU Sovereign 	
Ratings: Methodology And Assumptions, June 14, 2011	
     -- Principles Of Credit Ratings, Feb. 16, 2011	
     -- Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1, 2010	
     -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, 	
May 27, 2009	
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 	
     -- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008	
     -- Corporate Criteria--Parent/Subsidiary Links; General Principles; 	
Subsidiaries/Joint Ventures/Nonrecourse Projects; Finance Subsidiaries; Rating 	
Link to Parent, Oct. 28, 2004	
     -- Abertis And French Subsidiaries Placed On Watch Neg On Downgrade Of 	
Spain And Announcement Of Possible Acquisition, Apr. 30, 2012	
     -- Ratings On Spain Lowered To 'BBB+/A-2' On Debt Concerns; Outlook 	
Negative, April 26, 2012	
     -- No Fast Lane Out Of Europe's Recession, Apr. 4, 2012 	
     -- Latin America Is Poised For Lower Growth, As Uncertainties Abound, 	
Jan. 26, 2012	
     -- Summary: Abertis Infraestructuras S.A., Dec. 8, 2011	
	
Ratings List	
Downgraded	
                                        To                 From	
Abertis Infraestructuras S.A.	
 Corporate Credit Rating                BBB/Watch Neg/--   BBB+/Watch Neg/--	
 Senior Unsecured Debt                  BBB/Watch Neg      BBB+/Watch Neg	
	
Complete ratings information is available to subscribers of RatingsDirect on 	
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 	
by this rating action can be found on Standard & Poor's public Web site at 	
www.standardandpoors.com. Use the Ratings search box located in the left 	
column.

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