July 16, 2012 / 9:43 AM / 5 years ago

TEXT-S&P comments on Europe's toll road network operators

(The following statement was released by the rating agency)

July 16 - While the performance of European toll road network operators (TRNOs) should remain broadly stable in 2012, a combination of the sovereign debt crisis, the weak economic environment, and a resurgence of mergers and acquisitions activity threaten issuers’ creditworthiness, says a report issued by Standard & Poor’s Ratings Services. Titled “Country Risks, A Weak Economic Climate, And M&A Activity Test Resilience Of European Toll Road Network Operators,” the report points out that traffic volumes in 2012 should see modest declines compared to those in 2011, except in Spain where the decline will, in our view, be more severe.

“We anticipate that in 2012, contractual tariff increases will support issuers’ revenues, as will marginal increases in profitability margins,” said Standard & Poor’s credit analyst Aurelie Hariton-Fardad. “The effect of tariff increases on traffic should be limited, as has been the case in the past when increases have closely followed inflation. What’s more, cost control measures--such as the automation of toll gates--will continue to contribute to TRNOs’ profitability.”

Although we believe that the sector’s operating performance will remain resilient in 2012, issuers’ credit quality could be constrained by heightened country risk caused by the sovereign debt crisis in Europe. Rated European TRNOs tend to have high exposure to one jurisdiction--Italy for Atlantia SpA (BBB+/Negative/A-2), Spain for Abertis Infraestructuras S.A. (BBB/Watch Neg/--) and Ferrovial S.A. (BBB-/Stable/--), and France for APRR and VINCI S.A. (BBB+/Stable/A-2) and its subsidiaries. This makes them susceptible to any weakening in their domestic operating environments and to potential adverse government measures directed toward them.

Our base-case credit scenario assumes that, in the remainder of the year, European TRNOs will maintain an “adequate” liquidity profile--the level we view as critical to retain an investment-grade rating. The ongoing European sovereign debt crisis could, however, affect rated TRNOs’ ability to tap the debt markets, especially those with exposure to Italy or Spain.

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