Fitch Ratings expects to rate Terminales Portuarios Euroandinos Paita SA's (Paita) US$110 million senior secured notes 'BB-'. The Rating Outlook is Stable.
KEY RATING DRIVERS
COMPLETION RISK: the project is to undertake 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 reaching financial closing (with a maximum of a 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 from 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 pre-funding schedule to complete further construction works. The facilities' conditions are expected to reach 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: the project's 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, 100% fixed-rate debt, incorporates a strong provision to trap cash to pre-fund construction costs of Phase II and III, and includes a dividend distribution test;
CONSIDERABLE LEVEL OF DEBT: the financing presents a sizable debt burden of over 10 times (x) Net Debt to EBITDA, with dependence on cash flow growth to maintain healthy financial ratios. The concession agreement allows for an adequate cash flow generation term. The required investments for phases II, III, and IV (additional investments), significantly reduce the project's financial flexibility.
WHAT COULD TRIGGER A RATING ACTION
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.
SECURITY
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.
TRANSACTION SUMMARY
Terminales Portuarios Euroandinos SA is issuing US$110 million senior secured notes with legal maturity in 2037. The notes are to be structured with a five-year grace period of interest payment only, under a scheduled amortization and a fixed interest rate payable quarterly.
Proceeds from the issuance, in accordance with the Payment and Guarantee Trust Agreement, are projected 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 is to use the proceeds of the notes, along with equity contributions, to fund the construction cost accounts and make a deposit into the additional investment trust account to prefund certain payments required for phase IV.
The estimated cost for the entire project is US$293 million broken down into three phases and includes additional investments (Phase IV) 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 are required throughout the life of the concession, totaling US$100 million (to be adjusted at a 1.19% annual rate, equivalent to US$123 million).
It is in Fitch's view that Paita has reasonable financial flexibility to sustain volume and price stresses, given the liquidity reserves and cash-trap mechanisms built into the structure. Reserve accounts notably contribute to offset cash flow shortfalls in periods of distress.
Fitch assumed 20-foot equivalent units (TEUs) compounded annual growth rate (CAGR) at 4.1% and 3.7% in its base and rating case, respectively. In addition, it included declines of 11% and 10% in two different years followed by a full recovery the year after in the base case. In the rating case, a reduction of TEU growth by 9% and 4% was included with marginal recoveries.
In Fitch's base case, the minimum debt service coverage ratio (DSCR) was calculated at 1.70x including liquidity reserves and annual cash balances. In the rating case, the minimum DSCR resulted at 0.78x in 2027. Based on the information provided, Fitch assumes that a working capital line of credit of up to US$5 million will be available to cover the US$2.1 million deficit in 2027, which mitigates this risk. If the short-term debt is drawn, Paita will have to repay the financial institution on a pari-passu basis.
Located in Piura, 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 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.
In March 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' (Aug. 16, 2011);
--'Rating Criteria for Ports' (Sept. 29, 2011).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648832
Rating Criteria for Ports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=652165
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