Fitch Ratings has taken the following rating actions on two Colombian toll roads after
P.A. Autopista Rio Magdalena's (ARM)
RATING RATIONALE
The rating actions reflect the projects' exposure to the credit quality of El Condor, who has signed engineering, procurement and construction (EPC) contracts with ARM and RAM. During the completion phase, the projects are exposed to the credit quality of their EPC contractors, including El Condor. In Fitch's view, El Condor's credit quality has deteriorated.
ARM
El Condor is in charge of the execution of the toll roads's functional units (UF) UF1 and UF2. As of
The Negative Watch on ARM will be resolved once Fitch has completed its assessment according to the Completion Risk Criteria.
RAM
El Condor is RAM's sole contractor. Although completion risk is assessed as 'High Stronger' due to its qualitative attribute assessments and available security, RAM's rated debt could still be constrained by El Condor's credit quality in case there is not available liquidity to repay the debt or replace the contractor in case needed. The construction advance is close to 93.5% with 85% of UFs (functional units) above 98%. The Negative Watch reflects Fitch's view that the impact of El Condor's deteriorated credit quality could impact the ability of the concessionaire to service the debt, if available liquidity is not sufficient.
Fitch notes that, as of today, the transaction has performance bonds covering the EPC agreement, letter of credits to secure equity injections and reserve accounts. The Negative Watch on RAM will be resolved once Fitch has completed its assessment of project's liquidity and dependence on El Condor's creditworthiness to complete the construction of the remaining works, according to the Completion Risk Criteria.
KEY RATING DRIVERS
ARM
Construction works are performed under two fixed-price date-certain EPC contracts. According to the IE, works are of low complexity and are executed by experienced contractors, and the completion schedule is adequate. The security package provides adequate liquidity should the EPC contractor need to be replaced, by means of combination of performance bonds, letters of credit and EPC contract retention clauses between 5.0% and 7.5%.
RAM
Completion Risk Reasonably Mitigated [Completion Risk: High Stronger]:
Construction works are being performed by
Although construction is expected to continue for one more year and end-of-year in 2024, the most complex works have already been completed. As of
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
ARM:
Fitch concludes the analysis of the level of liquidity embedded in the EPC agreement given IE's updated view on the replacement cost premium;
Completion difficulties leading to delays and cost overruns beyond those already contemplated in Fitch's scenarios;
Deterioration in Fitch's view regarding the credit quality of ANI's grantor obligations;
RAM:
Lack of liquidity to service the debt in 2024 in case of further delays in the completion of Functional Units;
Fitch's conclusion that completion risk remains exposed to El Condor's creditworthiness
Completion difficulties leading to delays and cost overruns beyond those already contemplated in Fitch's scenarios;
No tariff inflation adjustment in 2024;
Tariff catch up for the 2022 inflation does not occur within the next one to two years;
Traffic performs materially below Fitch's rating case levels of annual average daily traffic (AADT) 29,111 in 2023 and 29,939 in 2024;
Removal, relocation or modification of the Caimanera toll or its fees without compensation that mitigates the resulting loss of cash flows.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
ARM:
A positive rating action is unlikely in the short term given the rating is on Negative Watch.
RAM:
A positive rating action is unlikely in the short term given the rating is on Negative Watch.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria listed below.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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