OREANDA-NEWS. Fitch Ratings has affirmed Aeroports de Paris SA's (ADP) Long-term Issuer Default Rating (IDR) and senior unsecured rating at 'A+' with Stable Outlooks and its Short-term IDR at 'F1'.

The affirmation reflects ADP's stable performance based on the group's resilience to economic downturns, solid competitive position, well-diversified revenue sources as well as the attractiveness of its wealthy catchment area. The ratings continue to be underpinned by a regulatory framework, which provides visibility on the group's cash-flows and capex programme. ADP's leverage is expected to increase but should remain consistent with the ratings and peers.

KEY RATING DRIVERS

Revenue - Volume Risk: Stronger
ADP is the second-largest airport group in Europe with strong origin and destination traffic (O&D, currently 77%) and demonstrated resilience to economic downturns (in 2009, revenue and EBITDA grew 4% despite a 4.7% drop in volumes). Traffic at Parisian airports increased 2.6% in 2014 (revenue and EBITDA growth at the group was 1.3% and 3.4% respectively). In 1H15 traffic in Paris grew 1.5% (revenue and EBITDA growth at the group was 5.1% and 3.2%, respectively).

ADP benefits from a large and affluent catchment area in the Parisian region. It also benefits from dual characteristics typically associated with both hub and O&D airports, particularly Charles-de-Gaulle (CDG), which accounts for most of ADP's operating profit. The largest carrier, Air France-KLM, represents 47.5% of traffic.

Revenue - Price Risk: Midrange
ADP's aviation tariffs are subject to a typical five-year price cap regime (albeit with increased commercial risk as a result of the application of dual/adjusted till) overseen by the French state (AA/Stable), with the current price controls set for 2011-2015. The overall strength of the Economic Regulation Agreement (ERA) regime (regulated, five-year, CPI-based price tariffs, fair return on capital, security costs fully recoverable and re-balancing mechanism for sustained changes in traffic) remains a rating positive, and Fitch considers regulatory framework as broadly supportive.

Fitch notes that the new ERA, which will regulate operations for 2016-2020, has been agreed with the French government and is to be signed shortly. The new agreement focuses on increasing the efficiency and attractiveness of the Parisian airports. The tariff increases are limited on average to CPI+1.00% with return on capital stabilising at 5.4% in 2020.

The moderate price increases are somewhat lower compared with the current average price cap of CPI+1.38% and will need to be balanced by operational cost savings given the agreement's higher regulatory capex requirement. ADP aims to incentivise long haul traffic and airlines performance in the coming years and will be changing its pricing structure accordingly. Overall, some of the parameters of the new regulatory agreement may be challenging but Fitch believes that on balance it does not change ADP's business risk profile.

Infrastructure Development/Renewal: Stronger
ADP's main hub, CDG, has sufficient capacity to handle traffic growth and has modern facilities. The group is approaching the end of the ERA capex programme for 2011-2015. Major investment projects have been delivered and ADP intends to fulfil its requirements to achieve the EUR2bn regulated capex target by 2015.

ADP intends to spend EUR3bn of regulatory capex on new buildings and various other infrastructure improvements in 2016-2020. Such heavy investment carries execution risk and could result in cost overruns. However, Fitch takes comfort from ADP's track record in delivering capex projects in the past.

Debt Structure: Midrange
ADP's debt is corporate unsecured with bullet maturity. However, this is mitigated by a well spread maturity profile. In addition, ADP is a well-recognised name in the European capital markets, and has successfully accessed debt markets during times of market disruption. Eighty-four per cent of the debt is fixed-rate (after taking into account hedging).

Debt Service
Fitch-calculated lease-adjusted net debt/EBITDAR (leverage) stood at a moderate 2.6x at end-2014. We expect the ratio to increase to 3.9x under our rating case for 2015-2019. Fitch's rating case leverage remains above ADP's reported figures, reflecting our considerations on ADP's international acquisition strategy. Any future significant debt-funded M&A activity would likely increase leverage and lead to greater volatility in financial performance.

Liquidity is strong, with cash in hand of EUR1.3bn at end-2014.

Peers
ADP compares well with its closest European peer, Heathrow airport (senior debt rated A-/Stable) as both airports benefit from large catchment areas as well as strong resilience to economic downturns due to inelastic demand. Heathrow's leverage profile is much higher (7x over the next five years), reflecting a more aggressive use of debt funding via a restrictive and covenanted financing structure.

ADP's ratings are consistent with similarly rated US airports that on the whole have more conservative financial structures, coupled with higher leverage but less uncertainty surrounding potential M&A activity.

RATING SENSITIVITIES

Sustained leverage above 4.0x due to, for example, heavily debt-financed acquisitions or a main carrier significantly cutting capacity could result in negative rating action. Adverse terms for the regulatory regime or a sustained exogenous shock could also place pressure on the ratings.

Leverage consistently below 2.0x could lead to positive rating action.

SUMMARY OF CREDIT
ADP is the second-largest European airport manager by number of annual passengers. It operates Paris's two main airports (CDG and Orly) and has minority stakes in TAV Airports and TAV Construction.

The French state continues to hold an effective majority of ADP. Under French law, the state must retain at least 50.1% of ADP's shares. ADP's ratings currently do not include any uplift for potential state support.