Exclusive: Loose covenants key threat to toll road ratings

Traffic volatility, debt structures and increased leverage account for most differences in European operator credit quality, says Fitch.

Economic weakness in Southern Europe and competition from free alternatives have been major factors behind the sub-par performance of some Iberian toll road networks in recent years, according to Fitch.

But the agency reckons debt structure has now become an equally important differentiating factor when assessing the credit quality of rated operators.

In a draft study seen by Infrastructure Investor, the company notes that networks like Spain's Abertis and Italy's Sias, Autostrada Brescia Verona Vicenza Padova (ABVP) and Milano Serravalle Milano Tangenziali (MSMT) have a corporate-style debt structure with loose or no covenants and exposure to increased leverage which make them more susceptible to seeing their ratings come under scrutiny.

By contrast, Portugal's Brisa wins plaudits for being “the most creditor-protective debt structure with a set of tight covenants applied on a single concession, ring-fenced from other activities of the group”.

Refinancing risk is another crucial factor identified by Fitch, with the likes of Abertis, Atlantia/Aspi and France's Autoroutes Paris-Rhin-Rhone (APRR) on a comparatively strong footing thanks to a diversified range of bullet maturities and ready access to capital markets. 

The agency is less impressed by ABVP and MSMT, for whom refinancing risk is deemed “a key negative rating factor”. Brisa is in the process of diversifying its concentrated set of bullet maturities, the agency reports, while Sias is said to benefit from a balanced mix of amortising and bullet instruments.

Abertis, APRR and SIAS are rated BBB+ by Fitch, only bettered in their peer group by Atlantia at A-. Brisa meanwhile achieves BBB, with MSMT and ABVP at BB+. All ratings are assigned a stable outlook apart from MSMT's and ABVP's, for which prospects are deemed “negative”.

Pricing systems, seen as similar between toll road networks, are not thought by Fitch as being a material differentiator. Operators' experience in making long-term investments means capex plans don't play a meaningful role in explaining ratings either, according to the agency.