OREANDA-NEWS. Fitch Ratings has assigned CLISA-Compania Latinoamericana de Infraestructura y Servicios S. A.'s (CLISA) proposed bond offering of up to USD300 million a rating of 'B-(EXP)/RR4'. Proceeds of the bond issuance will be used to refinance existing debt. The issuance will improve CLISA's debt maturity profile as well as lower its overall cost of debt.

The bonds will be guaranteed by Benito Roggio e Hijos S. A. and Cliba Ingenieria Urbana S. A and rank pari passu in priority of payment with CLISA's other senior unsecured debt.

KEY RATING DRIVERS

CLISA's ratings reflect the company's strong market position as one of the largest privately-owned conglomerates supported by its businesses in various public infrastructure works. The company is exposed to cyclicality in its construction business, leading to increased importance of its waste management business. CLISA's main activities depend on contractual agreements and Argentine government regulations at the national, provincial and municipal levels. The ratings are constrained by Argentina's country ceiling rating.

STRONG MARKET POSITION

CLISA operates in four main businesses: construction and toll road concessions (through Benito Roggio e Hijos [BRH]), water treatment, waste management (CLIBA), and transportation. The waste management division is the largest contributor to sales and EBITDA at around 42% and 53%, respectively, as of December 2015. During the first quarter of 2016 waste management operations contributed 47% to sales and 58% to EBITDA. This resulted from improved performance in the waste management business partially offsetting the slowdown in the construction segment. Construction and toll road concessions now contribute 30% to sales and 24% to EBITDA as of the first quarter 2016, down from 40% and 44% in 2013.

EXPOSURE TO REGULATORY RISK

CLISA's main business activities depend on contractual agreements and government regulations at the national, provincial and municipal levels. Past actions include the previous administration's interference in the concession of Metrovias' (CLISA's mass transport subsidiary) operation of the subway concession in 2013 and rescinding of CLISA's contract for the operation of the San Martin and Mitre commuter railroad services in 2015. An agreement was reached for Metrovias to exclusively operate and maintain the subway, and the contract was renewed and amended in February 2016. Exposure to regulatory risk also derives from the delay in the renegotiations of public service contracts.

EXPOSURE TO CYCLICALITY IN CONSTRUCTION

While the waste management business contributes the majority of sales and EBITDA, CLISA's construction and toll road concessions continue to be important to its overall operation at 30% of sales and 25% of EBITDA. The company's cash flow from this business is exposed to the cycles of the construction industry and public works in Argentina. The construction segment decelerated during the last three years due to the macroeconomic slowdown in Argentina and the Presidential elections in October 2015. The slowdown is one reason for the increased importance of CLISA's waste management business. Fitch expects activity to pick up in the medium term after the Macri administration has reviewed its priorities for infrastructure development.

CLISA's consolidated construction backlog continued to be strong at around ARS7 billion allowing the company to maintain an important cash generation source for approximately three years. The company is also exposed to collection risk derived from having the government as its main counterparty.

RESULTS IMPROVING IN LOCAL CURRENCY

On a peso basis, the company's revenues and EBITDA grew by 25% and 12% respectively in 2015. CLISA reported sales and EBITDA of ARS9 billion (USD917 million) and ARS1.2 billion (USD127 million), respectively as of December 2015. This compares with revenues of ARS7 billion (USD851 million) and EBITDA of ARS1.1 billion (USD132 million) reported in 2014. The increase was mainly driven by new contracts and adjustments to existing contracts in the waste management and construction and toll road concessions segments.

LEVERAGE AND LIQUIDITY WEAKENING DUE TO DEPRECIATION

Depreciation of the peso in the fourth quarter of 2015 was the main reason for the significant increase in the level of reported debt. At Dec. 31, 2015 CLISA reported ARS4.5 billion in total debt up from ARS2.8 billion in 2014. On a dollar basis, the company's total debt increased to USD341 million from USD332 million over the same period. As a result of the depreciation, in local currency terms gross and net leverage ratios jumped to 3.8x and 3.1x, respectively, as of year-end 2015. The company reported ARS779 million (USD60 million) in cash and equivalents in 2015. ARS163 million of reported cash and equivalents are tied for use to specific government projects.

RATING SENSITIVITIES

The company's ratings reflect the close relationship between CLISA and the Argentine government, which has a 'B' country ceiling. A positive rating action in the short to medium term is unlikely without an upgrade of Argentina's country ceiling.

CLISA's ratings could be negatively affected by a combination of the following: economic deterioration and a downgrade of Argentina's sovereign ratings; a significant deterioration of credit metrics; and/or the adoption of adverse public policies that can affect the company's business performance in any of its business segments.