Brisa faces rocky road to recovery

Brisa Concessao Rodoviaria (Brisa), the Portuguese motorway operator, has been placed on Ratings Watch Negative by Fitch Ratings.

The agency expressed concerns that Brisa could again post a net debt to EBITDA ratio below its lock-up covenants of 6.5x by end 2013. The company has been in breach of this covenant since the end of last year.

Fitch believes the company will be able to cover debt maturities for the next two years, thanks to its existing cash availabilities and short-term lending facilities. These, however, are deemed insufficient to meet the large €600 million bullet bond redemption Brisa faces in December 2016.

The company has been severely impacted by the sharp fall in traffic observed over the past two years, a consequence of the raft of austerity measures taken by the government since Portugal received a bail-out in 2011. Economic growth and consumer activity have plummeted since then, leading the number of cars on Brisa’s roads to drop by 14 percent last year and 4.4 percent in the nine months to end September 2013.

Both the economy and traffic have since somewhat stabilised, but Fitch believes it will take time before Brisa can pocket more cash as a result. The low inflationary environment today makes it difficult for the company to meaningfully raise its tariffs, while earlier efforts to rationalise its business means Brisa has only limited room to further reduce capital expenditures should fresh traffic shocks materialise.

The agency acknowledged Brisa’s deep experience in constructing, operating and maintaining Portuguese toll roads, having been in the business for almost 40 years and being now in charge of 65 percent of the country’s network.

But a great deal will now depend on the company’s ability to bring leverage below 6.5x – failing which, Fitch could downgrade its rating to BBB-, one notch short of falling into speculative grade territory. Although Fitch doesn’t make any explicit link between Brisa’s rating and that of the sovereign, the agency also notes that a further deterioration of Portugal’s macroeconomic environment would likely lead the company to suffer a downgrade.

Brisa is currently rated Ba2 by Moody’s, another member of the world’s dominating trio of rating agencies – below the BBB threshold needed to make it to investment grade.