Fitch Ratings has assigned a 'BB-' rating to Terminales Portuarios Euroandinos Paita (TPE) SA's US$110 million senior secured notes. The Rating Outlook is Stable. However, Fitch notes that during its review of the final closing documents it identified an inconsistency regarding the construction performance security that was stipulated in the original transaction documents.
Fitch believes the project's exposure to completion risk is heightened, as performance security was not provided by a financial institution with an international rating. In Fitch's view, the Stand-by Letters of Credit (SBLC) provided by Banco Interamericano de Finanzas (Banbif) to cover liquidated damages in the event of delays and/or cost overruns during the Phase I construction period are considered weak mitigants, given the construction risk associated with the project. TPE has indicated that it will replace Banbif no later than Oct. 1, 2012, with a 'BB' internationally rated financial institution.
As of March 2012, a near final version of the EPC contract stipulated that an investment grade, internationally rated performance security was required. However, it is Fitch's view that a 'BB' rated financial institution provides adequate mitigation and is consistent with the project's debt rating. Were the SBLC to not be replaced, a negative rating action could occur.
In accordance with Fitch's policies, the Issuer appealed and provided additional information to Fitch that resulted in a rating action that is different than the original rating committee outcome.
KEY RATING DRIVERS
COMPLETION RISK: The project is subject to undergo a significant
expansion throughout the life of the concession. Construction of Phase I
is expected to be the most extensive of the four stages. According to
the concession agreement, Phase I must be completed within 24 months
after financial closing (with a maximum period of six-month delay).
MATERIAL EXPOSURE TO CARGO VOLATILITY: The Port of Paita is a second port of call with considerable concentration in cargo type, business lines, and customers. Distant to major economic centers, the port is exposed to cargo volatility, with limited multimodal capabilities and access to infrastructure.
ELEVATED EXPOSURE TO VOLUME RISK: The port is significantly exposed to volume risk and economic cycles, as formal contractual agreements with shipping lines are limited.
RELIABLE FACILITIES RENOVATION PROGRAM: The project has a well-defined
redevelopment plan and an adequate prefunding schedule to complete
further construction works. The facilities' conditions are expected to
achieve favorable levels, given that construction timetables for Phase
II and III are in line with demand growth. Construction costs for the
four phases are predetermined in the concession agreement, and budgeted
in the financial projections.
ADEQUATE STRUCTURAL PROTECTIONS: Financial flexibility is mainly sustained by the existence of adequate liquidity reserves available for debt service and/or for construction costs of Phase II and III. The structure additionally, provides a five-year grace period, incorporates a strong provision to trap cash to prefund construction costs of Phase II and III, and includes a dividend distribution test.
MODERATE LEVEL OF DEBT: Financing presents a moderate debt burden with dependence of cash flow growth to maintain healthy financial ratios. Concession agreement allows for an adequate cash flow generation term. However, required investments for stages II, III, and IV (additional investments), significantly reduce the project's financial flexibility.
WHAT COULD TRIGGER A RATING ACTION
FAILURE TO TIMELY REPLACE FINANCIAL GUARANTOR: The project could face greater exposure to construction risk than initially anticipated.
SIGNIFICANT CONSTRUCTION DELAYS: In accordance with the concession agreement, a termination is possible if Phase I construction works exceed 30 months.
SUBSTANTIAL DECREASE IN REVENUES: Limited contractual agreements and weaker customer diversification elevates merchant risk, subjecting prices to market volatility.
The notes are secured by the pledge of all capital stock of the issuer, the mortgage between the issuer and sub-collateral agent, and a perfected security interest in all of the issuer's assets.
Terminales Portuarios Euroandinos SA has issued US$110 million of senior secured notes with legal maturity in 2037. The notes are structured with a five-year grace period of interest payment only, under a scheduled amortization and with 8.125% fixed interest rate payable quarterly.
Proceeds from the issuance, in accordance with the Payment and Guarantee Trust Agreement, were used to fund the Debt Service Reserve Account (DSRA) and the Operation and Maintenance (O&M) Reserve Account on the closing date, and to pay the fees, premiums and expenses related to the offering of the notes. In addition, the Issuer used the proceeds of the notes, along with Equity contributions, to fund the Construction Cost Accounts and made a deposit into the Additional Investment Trust Account to prefund certain payments required for Stage IV.
The cost for the entire project is US$293 million broken down into three stages and includes additional investments as required by the concession agreement. Stage I is mandatory and consists of the construction of a new terminal, dredging to 13 meters and purchase of various gantries for a cost of US$131 million. To the extent that volumetric levels are reached, there are two other investment phases required by the concession agreement. Phase II is expected to cost US$19.3 million, and Phase III is estimated at US$19.8 million. Additional Investments (Phase IV) are required throughout the life of concession, total US$100 million (to be adjusted at 1.19% annual rate, equivalent to US$123 million).
Fitch believes the transaction contains appropriate financial flexibility given the liquidity reserves and cash trap mechanisms built into the structure. The structure exhibits resilience to stresses, as reserve accounts contribute to offset cash flow shortfalls in periods of distress.
Located in the North-western region of Peru, the Port of Paita is a small container port with the second highest activity in container movements in the country, in terms of twenty-foot equivalent units (TEUs). The port currently handles over 150,000 TEUs. The port is predominantly an export-driven facility focused on hydro-biologic products (pota calamari, and fish flour), agro-industrial products (mango, coffee, banana, and grape), fish meal and oil. In contrast, the main import-products are fertilizers and grains.
The port is located in the region Piura, a small city with low economic activity, 1,030 km (approximately 640 miles) northwest of Lima. Paita is connected to the IIRSA highway, a 955 km road that links Paita to the Yurimaguas port (Amazon system) with no significant competition. The location enables the port to have a competitive advantage, over Callao and Guayaquil, to service the Northwestern Peruvian market.
Built in 1966 and renewed in 1999, the port is currently in operation. It services principally, the demand for Piura, Lambayeque, Cajamarca, San Martin, and Amazonas area. In October 2009, TPE was granted a 30-year concession to operate and improve Puerto Paita under a design, build, finance, operate, transfer (DBFOT) scheme. The concession was granted by the government of Peru through the Ministry of Transportation and Communications (MTC) to TPE, a company jointly owned by Mota - Engil and Cosmos Agencia Maritima.
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012);
--'Rating Criteria for Ports' (Sept. 29, 2011).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Ports
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