Fitch Ratings affirms Lima Airport Partner's (LAP) $164.8 million fixed-rate notes due 2022 at 'BBB-'. The Rating Outlook is revised to Positive from Stable. LAP will start paying interests on the notes after a three zero-coupon period since September 2010 and the amortization of the notes will start in September 2012.
The 'BBB-' rating reflects the strength of the transaction's underlying airport asset and its ability to produce sufficient cash flow to support debt obligations in the future. Good demographic fundamentals, connectivity to main South American economic centers and little viable competition make the airport an attractive and strategic hub. The Jorge Chavez International Airport (JCIA) received 99% of total international air traffic to the country and serviced 58% of domestic air traffic in 2009. The rating also reflects the financing ring-fenced structure, which successfully isolates the asset from the operator's solvency risk and the operator's risk of losing the Concession.
The revision to Positive Outlook from Stable captures the continued growth in passenger traffic ahead of previously assumed forecasts that will enable the project to sustain favourable margins under acute stress scenarios; including the implementation of future capital outlays as stipulated by the concession. Offset credit factors include future tariff revisions to recover an adequate amount of revenues recognizing the investments to complete the second runway for the period 2014-2018.
The airport has significantly outperformed its traffic growth projections, with a compound annual growth rate (CAGR) of 13% from 2007 to 2009, representing one of the highest growth rates of airports in the world. In 2009, the airport continued to post positive traffic trends despite the global economic recession. Traffic in 2009 increased 6.1% to 8.8 million passengers from 8.3 in 2008. Gross revenue up to September 2009 is up 11% over the same period in 2008. Although JCIA's passenger base is almost 50/50 international / domestic, excluding transfer and transit passengers, international passengers (who are charged higher tariffs) grew by 4.5% in 2009 and domestic traffic grew by 6.5%. In 2009, international traffic growth was driven mainly by USA with the largest share of visitors to Peru (24%), then by Chile (11%), Colombia (11%) and Spain (9%). In sum, South America represented 49% and North America 28% of international traffic. Interestingly enough, in 2009 Colombia and Spain more than doubled its participation when compared to 2008. Positive traffic trends at JCIA also capture LAN Airlines aggressive market strategy in 2009 to substantially expand its domestic destinations and frequencies as well as coverage in the carrier's main markets. LAN's expansion of coverage at Lima Airport parallels the continued growth of the economy and Peru's strong fundamentals when compared with other regional airports.
The regulatory framework including the price cap formula (RPI-X) was revised twice during 2009. The initial 0.53% X factor or productivity factor set by the Public Transportation Regulator for Infrastructure Investment's (OSITRAN) on Dec. 30, 2008 for the period January 2009 to December 2013 as part of the tariff review process, was adjusted in March at -0.49% to reflect a miscalculation of the input index price. In December 2009, OSITRAN published a revised productivity factor that addressed some of LAP's appealed analytical differences at - 0.61%. The tariff calculated with this X factor has now been in place since Jan. 16, 2010. For the period between March 7, 2009 and Jan. 16, 2010, the tariff was calculated by subtracting only -0.49% from the US Retail Price Index. Fitch opines that this first tariff review process reveals the application of the predetermined methodology for future revisions.
LAP's revised three year capital plan includes important major maintenance in 2010 for the existing runway as well as the initial investment for the second runway build-out assuming the Government delivers the land before February 2013. Fitch views positively the lower level of additional senior debt needed to finance the investments and considers the cash available for debt service is sufficient to cover all obligations.
Fitch's analysis includes various sensitivity scenarios to assess the project's ability to withstand significant stresses. Among others, it incorporates important economic factors affecting the ability to repay debt, including: revenue derived from traffic volume, tariffs, all required capital expenditures, the ability to issue additional senior debt and release dividends starting in 2010. The applied scenarios are commensurate with the rating level affirmed which show LAP's resiliency to the global recession.
The Jorge Chavez International Airport operating concession expires in 2031, nine years after the expected repayment of the rated notes, and has an automatic right of renewal for an additional 10 years.
The fixed-rate financing has a term of 15 years. The issuer is Lima Airport Partners SRL (LAP). The bonds are secured by revenue collected on Lima Airport pursuant to a concession granted by the Ministry of Transportation, Communications, Housing and Construction (MTC) of the Peruvian Government.
Applicable criteria available on Fitch's website at 'www.fitchratings.com':
--Rating Criteria for Infrastructure and Project Finance
Additional information is available at www.fitchratings.com.
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