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.