OREANDA-NEWS. Fitch Ratings has affirmed Autopistas del Nordeste (Cayman) Ltd's (AdN) US$162 million senior secured notes at 'B+'. The Rating Outlook is revised to Positive from Stable.

The Outlook revision to Positive from Stable follows the rating action taken on the sovereign rating in December 2015, which reflects the continued positive economic performance relative to peers, the reduction of external vulnerabilities, and progress on gradual fiscal consolidation.

The rating is supported by the minimum revenue guarantee (MRG) paid by the government of the Dominican Republic, ('B+', Positive Outlook). This guarantee kicks in as current and expected future toll revenues fall far below levels required to service debt and cover project costs, which has been the case since the debt was initially issued in 2006. The rating affirmation is based on the internal credit enhancement available to the transaction, deferrable principal payments and the expectation that the government will continue to honor its obligation, albeit on a delayed basis.

Repeated delays in the payment of the MRG have not eroded the ability of the project to comply with its debt service obligations given the credit enhancements available, such as reserve funds, a stand-by letter of credit (SBLC) provided by the government upon the concession and about US$15 million of internal liquidity in the form of working capital contributed by the concessionaire's stockholders. Fitch believes the delays are not signs of the sovereign's incapacity or unwillingness to pay, but rather a manner to make use of the financial flexibility offered by the liquidity position of the project. If such a buffer was not available, Fitch believes the government would try and reduce the payment cycle. The presence of Multilateral Investment Guarantee Agency (MIGA) insurance may also incentivise the government to treat the MRG as a senior expenditure.

KEY RATING DRIVERS
Adequate Governmental Support: The government of the Dominican Republic pledged an MRG that protects noteholders from the risk of insufficient traffic over the life of the notes. The government has continued to honor this pledge, and Fitch expects required payments to be made over the life of the notes. The government also offers a SBLC required under the concession agreement to provide additional support to the transaction.

Financial Guarantee: The notes benefit from a partial political risk guarantee provided by the MIGA, a member of the World Bank Group. A failure by the government to honor the MRG would be covered under this guarantee; however, disbursements can be delayed and internal liquidity is essential to the project's capacity to service debt. Fitch believes the MIGA guarantee provides additional incentives for the government to honor its obligations under the concession.

Low Volume Touristic Asset [Revenue Risk - Volume: Weaker]: The toll road connects Santo Domingo and the northern province of Samana. The road provides an efficient route but has competing free alternatives. Moreover, despite robust gains in recent years, actual traffic remains far below initial projections requiring substantial payments via the MRG. This dependence on external revenues is expected to continue in the near to intermediate term.

Regular Toll Increases [Revenue Risk - Price: Midrange]: The operator of the road is able to increase tolls under the concession agreement and has historically completed annual rate adjustments to account for inflation without issue.

Predictable Operating Costs [Infrastructure Development & Renewal: Midrange]: A fixed operation-and-maintenance agreement with an experienced operator partially mitigates substantial cost escalations. Additionally, the project benefits from oversight from an independent engineer who provides quarterly reports to investors on the overall condition of the toll road and current and future maintenance needs.

Conservative Debt Structure [Debt Structure: Stronger]: The notes are fully amortizing, fixed-rate obligations with an adequate covenant package. Liquidity available within the structure includes a six-month debt service reserve account and a major maintenance reserve account. These reserves account for liquidity to cover approximately 12 months of debt service. Additional flexibility is also available as targeted principal amortization on the notes is deferrable.

Peer Group: The transaction's dependence on revenues from the Dominican Republic effectively caps the rating at the level of the sovereign; however, financial metrics such as debt service coverage ratio (DSCR) and net-debt to cash flow available for debt service are generally consistent with higher rated peers such as ENA Este, S.A.

RATING SENSITIVITIES
Positive: A positive rating action on the sovereign, to the extent that project fundamentals and financial metrics support a rating improvement.
Negative: A negative rating action on the sovereign.
Negative: Delays in the payment of the MRG that result in material deterioration of project liquidity.

SUMMARY OF CREDIT
In 2015, traffic on the toll road increased 15.3% versus 2014 and O&M expenses were practically at the targeted level. The stronger growth in volume reflects an increased touristic activity in the Samana region from local and international tourists, coupled with improved economic prospects in the country. The increased levels of traffic benefit the transaction by providing additional liquidity to deal with delays in the payment of the MRG, but are not sufficient to undermine the importance of the MRG payments.

During 2015, the government continued having heavy delays in the payment of the MRG. However, there was no need to draw upon the reserve fund or the SBLC the government provides upon the concession. The increased cash generation as a result of the significant traffic growth and the approximately US$15 million in the form or working capital AdN maintains allowed for timely debt service. The latter was retained by the shareholders and moved out of the dividends account to provide additional liquidity to the project during the months no MRG payment from the government is received.

Four MRG payments were received in 2015 for the months of June 2014 to May 2015 with 145 days of collection in average. Payments for the months of June to December 2015 have not been received to date.

The transaction benefits from a partial credit guarantee from MIGA which supports debt service payments should the government not comply with their obligations. The guarantee pays 51% of debt service not honored up to a maximum of 51% of the total principal balance. The guarantee is not payable on a timely basis though, and the transaction depends on the liquidity available internally to meet debt service obligations prior to receipt of MIGA funds.

Currently, 25% of AdN's shares are held by two companies of the Grodco group, which is in the process to sell its total participation in the project to two companies of the Odinsa group and to Caribbean Basin Construction Company. Once the share acquisition is completed, Odinsa's participation in the equity of AdN will go up to 66.31%. In Fitch's opinion, no negative impact is expected on the project as a result of the abovementioned.

The toll road, completed in 2009, extends along 106 kilometers (approximately 66 miles), connects Santo Domingo with the northern province of Samana, and includes three toll plazas. In comparison to alternative roads in the region, it considerably reduces the travel distance between Santo Domingo and Samana. AdN is the issuer, created under the laws of the Cayman Islands, and is an exempted limited liability company.

Contact:

Primary Analyst
Astra Castillo
Director
+52 81 8399 9100
Fitch Mexico, S.A. de C.V.
Prol. Alfonso Reyes 2612
Monterrey, Mexico 64920

Secondary Analyst
Patricia Gomez
Director
+57 1 326 9999

Committee Chairperson
Glaucia Calp
Senior Director
+57 1 326 9999

Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com.

Sources of information as identified in the applicable criteria specified below.

Additional information is available on www.fitchratings.com

Applicable Criteria
Rating Criteria for Infrastructure and Project Finance (pub. 28 Sep 2015)
Rating Criteria for Toll Roads, Bridges and Tunnels (pub. 29 Sep 2015)

Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
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25 Jan 2016 2:20 PM EST

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