Fitch Ratings has affirmed
The Rating Outlook for both ratings has been revised to Stable from Negative. The international and local notes are supported by the cash flow generation
The Outlook revision to Stable reflects Fitch's updated view on
RATING RATIONALE
AdS's ratings reflect the asset's traffic and revenue profile, supported by an adequate toll adjustment mechanism. Mostly used by commuters, the project may face significant competition in the short-to-medium term once the main competing road is improved, and especially if its tariffs are significantly lower than those of Ruta 27.
Toll rates are adjusted quarterly to exchange rate and annually to reflect changes in the
Fitch's Rating Case minimum and average debt service coverage ratios (DSCR) are 0.9x and 1.2x, respectively, which remain in line with Fitch's criteria guidance for the assigned rating. The eventual shortfalls in coverage ratios will likely be covered by the reserve accounts available within the structure. Under this scenario, Fitch expects the project will receive MRG payments from 2025 onward, which totals 9% of annual revenues on average.
KEY RATING DRIVERS
Mostly Commuter with Growing Heavy Traffic [Revenue Risk - Volume: Midrange]:
The asset is a toll-road that serves a strong reference market, playing an important role in the broader transportation system as it serves as a link between
Adequate Rate Adjustment Mechanism [Revenue Risk - Price: Midrange]
Toll rates are adjusted quarterly to reflect changes in the Costa Rican Colon (CRC) to USD exchange rate, and annually to reflect changes in the
Suitable Capital Improvement Program [
The asset is operated by an experienced global company with a higher-than-average expense profile due to its geographical attributes. The majority of the investments required by the concession have been made. The concession requires lane expansions when congestion exceeds 70% of the ideal saturation flow, which triggers the need for further investments. However, the project would only require the grantor to perform these investments to the extent they do not represent a breach in the DSCRs assumed by the issuer in the financing documents.
Structural Protections Against Shortened Concession [Debt Structure: Midrange]
Debt is senior secured, pari passu, fixed-rate, and fully amortizing. It is USD-denominated but no significant exchange rate risk exists due to the tariff adjustment provisions set forth in the concession, and because CRC-denominated toll revenues will be converted to USD daily. There is an NPV cash trap mechanism to prepay debt if revenue overperforms, which largely mitigates the risk of the concession maturing before the debt is fully repaid. Typical project finance features include a six-month debt service reserve account (DSRA), a six-month backward and forward-looking 1.20x distribution trigger and limitations on investments and additional debt.
Financial Summary: Under Fitch's Rating Case, the project yields a minimum and average DSCR of 0.9x and 1.2x, respectively. The concession is expected to expire in
PEER GROUP
Comparable projects in the region include
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Negative rating action on
Traffic (WAADT) performance significantly below the Fitch's rating case expectation of 40,560 vehicles in 2022 and 38,379 vehicles in 2023, and/or a substantially greater than expected traffic loss occurs due to the completion of works in the competing route.
A deterioration of the liquidity available for debt service, beyond the expected use of reserves.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A further positive rating action for the international rating is unlikely in the near future given the tight financial profile that is expected for the coming years with DSCR close to 1x until 2025.
The national scale rating may present a positive rating action if traffic (WAADT) performs above Fitch's base case expectation of 41,432 vehicles in 2022 and 41,868 vehicles in 2023.
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
TRANSACTION SUMMARY
The asset serves as a connection between the city of
CREDIT UPDATE
During the first five months of 2022, traffic reached 95% of 2019 traffic, generally in line with Fitch's Rating Case expectation of 96% of 2019 volume. The traffic mix has shifted slightly since the pandemic, with a proportional increase of heavy vehicles (now 7% from 6% in 2019) as it decreased less than other categories, and a decline in bus traffic generally due to pandemic-related effects on public transportation. This is consistent with what Fitch has observed with other toll roads, given the significant effects of pandemic-related measures on commuting traffic.
Tariffs in 2022 increased around 13%, in line with
Revenues through
Operational expenses have been generally in line with Fitch's expectations. However, total expenditures were materially lower, given that investments for slope stabilization were considerably lower than projected at
The first phase of improvements to the competing route
FINANCIAL ANALYSIS
Considering that traffic has stabilized, nearly recovering to pre-pandemic levels, Fitch has reintroduced a Base Case in this review.
Fitch's Base Case assumes a traffic recovery in 2022 of 95% relative to 2019 levels based on the following average assumptions of quarterly traffic: 98% and 93% for 3Q22 and 4Q22, respectively. The traffic reduction in 4Q22 reflects the expected effects of the completion of the second phase of improvements in the competing road. For 2023 and 2024, Fitch assumes traffic of 96% and 80% relative to 2019 levels, which considers, among other factors, a tempered negative impact from the competing route that will likely complete its improvements in 4Q22 and 2024. From 2025 until 2033, Fitch expects a compounded annual growth rate of 4%.
O&M and major maintenance expenses were projected following the issuer's budget plus 7.5% for every year
Fitch's Rating Case assumes a traffic recovery in 2022 of 93% relative to 2019 levels based on the following average assumptions of quarterly traffic: 98% and 85% for 3Q22 and 4Q22, respectively. The traffic reduction in 4Q22 reflects the expected effects of the completion of the second phase of improvements in the competing road.
For 2023 and 2024, Fitch assumes traffic of 88% and 71% relative to 2019 levels, which considers, among other factors, a greater negative impact from the competing route that will likely complete its improvements in 4Q22 and 2024. From 2025 until 2033, Fitch expects a compounded annual growth rate of 4%. O&M, major maintenance and inflation assumptions are the same as in the Base Case.
This scenario resulted in a minimum and average DSCR of 0.89x and 1.20x, respectively. Available liquidity is sufficient to withstand transitory shortfalls when CFADs cannot fully cover debt service. In 2022, O&M reserves are expected to cover the forecasted shortfall which is driven mainly by the additional CAPEX investments. Under this scenario, MRG will be received from 2025 onward.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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