Spanish debt woes hit concession payments

Castilla-La Mancha is nine months behind its agreed shadow toll payments for a road concession awarded to an ACS subsidiary. Moody’s says there is ‘growing evidence that Castilla-La Mancha is prioritising core expenditures ahead of its payment obligations’ to the concessionaire.

Castilla-La Mancha, an autonomous region in central Spain, is nine months behind its monthly payments to a 52-kilometre shadow toll road concession known as Aumancha, a report by rating agency Moody’s reveals.

Moody’s highlights that there are “increasing delays in shadow toll payments and growing evidence that Castilla-La Mancha is prioritising core expenditures ahead of its payment obligations to Aumancha”. Aumancha is a toll road linking the cities of Toledo and Consuegra which was awarded to a consortium led by Iridium, a subsidiary of Spanish developer ACS, in 2003. 

The road, which finished construction in 2005, carries a 30-year contract that will remunerate the private partner via shadow tolls. The latter are “payable monthly by Castilla-La Mancha pursuant to a banded payment mechanism based on actual vehicle-kilometres driven, with payments adjusted for CPI [consumer price index] annually,” Moody’s explains, adding: “Traffic risk is substantially mitigated by the banded payment mechanism.”

True as that may be, the arrangement now exposes the concessionaire to sovereign risk, as Spain’s troubled regions struggle to make ends meet after a decade of debt-fuelled growth. However, Moody’s, which downgraded Aumancha’s underlying €110 million debt to B3 from Baa2, points out that the situation isn’t as bad as it might seem.

For starters, Aumancha has until July 15, 2012 to pay its next debt service and has a fully-funded 12-month debt service reserve facility. Secondly, the concession agreement forecasts “the economic-financial rebalancing” of the toll road, in case of trouble, although that protection is tied to the region’s credit rating, which was recently downgraded to Baa2. Crucially for lenders, the €110 million loan, due in 2013, is “irrevocably guaranteed” by Assured Guarantee, a monoline insurer.

Moody’s says the “underlying rating for Aumancha may be upgraded in the (currently unlikely) event that Castilla-La Mancha [‘s rating] is upgraded or following settlement of payment arrears and normalisation of monthly shadow toll payments”. If worse comes to worse and the region completely reneges on its commitments that “would likely result in a default on the loan,” the rating agency stated.