oProlonged lockdowns and travel restrictions related to the COVID-19 pandemic have led to a sharper drop in traffic than we previously anticipated, with volumes on the Spanish toll road operated by Autopista del Sol Concesionaria Española's (AUSOL) down 40% compared with the 30% we forecast in
oWe expect limitations on movement will persist through part of 2021. In our view, AUSOL's performance will continue to be subdued and reliant on a recovery in traffic volumes, which we now believe could take until 2023 to return to 2019 levels.
oWe are therefore lowering our rating on AUSOL's senior secured debt to 'BB+' from 'BBB-', and keeping it on CreditWatch with negative implications.
oThe CreditWatch indicates that we could lower our rating on AUSOL's debt if we see the project is exposed to further tax liability, following the tax consolidation.
Strengths
oStrong operational performance, which materially reduces the uncertainty in relation to the operations and maintenance (O&M) of the asset during the debt tenor.
oWe view the project as a simple toll road asset. Weather conditions are mild and there are no severe winters, resulting in relatively simple O&M.
oThe upward trend of the annual debt service coverage ratio (ADSCR) profile allows for some volatility of traffic growth in the long term, with sufficient headroom to the debt service.
Risks
oThe road is fully exposed to traffic risk, which is highly seasonal, with demand increasing around Easter and peaking during the summer months (July, August, and September).
oIt competes with one free alternative route, which was less attractive pre-COVID-19, since it operated close to capacity, but has become more competitive as overall traffic in the corridor has declined amid the pandemic.
oAUSOL is tax consolidated with its holding companies Infratoll and Meridiam Investments 5 SAS, and as per Spanish law, could be deemed jointly and severally liable for any unpaid tax liabilities owed by these companies.
The prolonged lockdowns and associated travel restrictions led to a larger traffic decline than what we expected.
During 2020 AUSOL's traffic declined by about 40% compared with our previous expectations of 30%. AUSOL's traffic is highly seasonal, with its peak historically taking place during the summer months. Contrary to our previous expectations, traffic did not sufficiently recover after restrictions eased before summer.
The second wave of COVID-19 infections and the associated containment measures have severely dragged on tourism in the region. According to Turismo y Planificación
Compared to the overall traffic performance of Spanish state toll roads, AUSOL's recovery has been weaker, according to the
Further limitations on national and international mobility are likely to weigh on tourism in the region and, in turn, slow AUSOL's traffic recovery compared to peers'.
While we expect full recovery of light vehicle volumes by end-2021 for most toll roads operators globally (see "Industry Top Trends 2021 Global Transportation Infrastructure," published
Our slower recovery assumptions for AUSOL reflect uncertainty about the evolution of the pandemic and the availability of the vaccine, which could potentially impact the pace of borders openings and international tourist confidence. Moreover, containment measures in
Project management's postponement of capital expenditure (capex) to ease liquidity pressures in the period prevented the project's credit quality from further weakening.
Project management acted to preserve liquidity by postponing discretionary capex due to the lower traffic level. Investments were also directly and indirectly impacted by the workforce being subject to mobility-containment measures during a peak outbreak. As conditions improve, we expect the project will resume capex, notably the required tunnels upgrade (Royal Decree 635/2006), which should be finalized by
We currently don't expect AUSOL to draw on its liquidity reserves to service its debt. The project has a one-year debt service reserve and a three-year major maintenance reserve account that provide adequate cushion to the project. Furthermore, we expect its revised credit quality to be supported by expenditure savings as recovery lags.
As vaccine rollouts in several countries continue,
Environmental, social, and governance (ESG) credit factors for this credit rating change:
oHealth and safety
CreditWatch
The negative CreditWatch indicates that we could lower our rating on AUSOL's debt if we see the project exposed to further tax liability, following the recent tax consolidation.
With a lower likelihood, we may further lower the rating if the COVID-19-related traffic decline deteriorates, causing forecast metrics to fall to about 1.10x.
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oCredit Conditions Europe: Waiting For Relief,
oSpanish Toll Road Operator AUSOL Debt Rating Lowered To 'BBB-' Amid COVID-19-Related Traffic Decline; On Watch Negative,
oAutopista del Sol Concesionaria Espanola 'BBB' Ratings On CreditWatch Negative Following Tax Consolidation Grouping,
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