OREANDA-NEWS. June 04, 2015. Fitch Ratings has affirmed Italian infrastructure holding group, Atlantia Spa's (Atlantia), and its fully owned toll road concession subsidiary, Autostrade per l'Italia Spa's (ASPI) senior unsecured ratings at 'A-'. The agency has also affirmed ASPI's Long-term Issuer Default Rating (IDR) at 'A-' and Short-term IDR at 'F2'. The Outlook is Stable.

The affirmation reflects the traffic stabilisation in the Italian group network, the group's stable financial performance, and moderate leverage, in the context of the long maturity of its main concession (2038). The lack of structural enhancements in the group's debt structure is compensated by the well-established access to capital markets, diversified range of bullet maturities and solid liquidity position, which mitigates the refinancing risk.

In its analysis of Atlantia/Aspi, Fitch focuses on Italian toll road business as the rated debt is fully serviced from the cash flow of these entities (mainly Aspi and other Italian toll road subsidiaries). The cross-guarantees system between Atlantia and ASPI allows for the equalisation of their ratings.

KEY RATING DRIVERS
Volume Risk - Midrange
Atlantia is a major infrastructure group and the largest Italian toll road operator, managing a network of around 3000km in Italy (around 70% of group EBITDA), which is critical for the mobility of the whole country. Its traffic was resilient through the 2008-2011 crisis (max 1% decline) but experienced a shock in 2012 (-6.8% like for like), due to the collapse of domestic consumption in response to austerity measures. Traffic also moderately contracted in 2013 (-1.6%) but returned to growth in FY14 (+1%) and 1Q15 (0.8%) sustained by the ongoing stabilisation of the country's economic performance (GDP growth expected at 0.6% in 2015 and 1% in 2016).

Under Fitch's revised rating case, which includes some protection against downside risk, traffic will remain flat in 2015 and marginally increase thereafter. The effect of the increased exposure to more growth-oriented assets in Latin America and the airport sector is still modest, as Fitch only takes into account the dividends received from those subsidiaries bearing non-recourse debt. These dividends are currently immaterial compared with the EBITDA from the Italian toll road perimeter.

Price Risk - Midrange
The concession framework is robust as it links inflation-indexed (70%) tariff hikes to capex execution, thus partly de-linking group's cash flow generation from negative traffic performances. However, the risk of political interference remains, especially if Italian macroeconomic performance deteriorates. Italy's current low inflationary environment will also weight on revenue increase in 2015 and possibly thereafter.

Infrastructure Development & Renewal - Stronger
The capex plan between 2014 and 2029 was originally estimated to cost EUR15bn and was expected to be a big challenge for ASPI. Fitch expects the original capex plan to be reduced to around EUR8bn-EUR10bn, notably because of lower needs for de-bottlenecking works, as traffic and congestion have dropped. We believe Atlantia is well equipped to deliver this affordable challenge as it has long-standing experience and expertise in delivering investment on its network.

Debt Structure - Midrange
The non-amortising nature of the debt and lack of material structural protection are weaker features. However this is adequately mitigated by the regulated asset base framework, moderate exposure to refinancing risk thanks to a well-diversified range of bullet maturities and demonstrated solid access to bond markets, with proactive and prudent debt management. The group has also well-established relationships with the government-owned financial arm Cassa Depositi and Prestiti (CDP, BBB+/Stable) and EIB (AAA/Stable), which provide favourably-priced funding to ASPI. Liquidity is comfortable as cash and committed credit lines cover debt maturities until 2016, in Fitch's rating case.

Fitch-adjusted leverage (pre-IFRIC 12) stood at 4.3x at FYE14, which was better than we expected last year. This shows the company's ability to maintain stable financial performance despite the current sluggish Italian economic environment. In Fitch's updated rating case, which uses more conservative assumptions than management case mainly on inflation, opex, interest rates and dividend distributions, leverage is expected to remain below 5x for the next three years. The rating case does not factor in any possible sale of a minority stake in ADR. If this was disposed, proceeds would be applied to finance the group's expansionary strategy in the airport and/or toll road sector.

The main peers for Atlantia are Abertis (BBB+/Stable) and to a lesser extent Brisa Concessao Rodoviaria (BCR; BBB/Stable), APRR (BBB+/Stable) and Sias (BBB+/Stable). Atlantia's traffic has proved much more resistant than Abertis, which maintained its rating thanks to asset sales. Against BCR, Atlantia has also over-performed, while APRR is somehow constrained by its Holdco-Opco debt structure. Atlantia is more leveraged that Sias but has a much longer concession tenor (2038), a more straightforward group and debt structure and is a well-known frequent issuer with a good recognition in the capital market

RATING SENSITIVITIES
The ratings could be downgraded if financial performance deteriorates, with leverage (pre-IFRIC 12) consistently exceeds the 6x mark.

Conversely, leverage durably below 4.5x under Fitch's rating case would be credit positive although unlikely to trigger an upgrade until the Italian economy and issuer's traffic are on a sustained growth path.

An austerity-related decision made by the Italian government, such as a change in taxation, prolonged freeze in toll rate increase or any other measure materially affecting group free cash flow generation, if not compensated, could adversely impact Atlantia's credit profile.

Compared with other European countries, Atlantia implemented a prudent and selective expansion strategy in recent years. A sustained move towards debt-funded acquisitions outside the Italian toll road business, with material impact on the recourse-debt metrics, could negatively affect the rating

SUMMARY OF CREDIT
Atlantia is an Italy-based infrastructure group and one of the largest toll road operators globally. It was focused on its core network but has progressively expanded to Latin American toll roads (Brazil and Chile) and airports. Its business profile is becoming slightly more complex and diversified from its historical core (recourse Italian) toll roads network