OREANDA-NEWS. Fitch Ratings has affirmed the ratings on AMT Management Limited's (AMT) senior secured debt securities as follows:

- AUD300m Tranche A medium term notes due November 2020 affirmed at 'A-'; Outlook Stable

- AUD225m Tranche B loan due July 2018 affirmed at 'A-'; Outlook Stable

The affirmation reflects AMT's solid traffic and financial performance, relatively moderate leverage in the context of the long maturity of its concession (extending to 2048) and Fitch's expectation of progressive deleveraging of the Eastern Distributor (ED) toll-road in accordance with concession requirements. The rating also reflects the critical role the ED plays within Sydney's orbital road network.

KEY RATING DRIVERS

Volume Risk: Midrange

The ED has benefited from completion of expansion works on other roads in Sydney's orbital network, including the M2 and M5, as well as relatively stable economic growth over the past several years. Toll revenue for the financial year ending 30 June 2015 (FY15) was up 7.0% on the prior year, driven by traffic growth of 2.3% and index-based toll rate increases. Traffic growth accelerated in the nine months to March 2016, increasing 4.2% from the prior corresponding period and generating toll revenue growth of 9.8%. In Fitch's adjusted base case, traffic growth is forecasted to continue at around 1.5%-2% a year in the medium-term. This is somewhat lower than Fitch's expected Australian GDP growth due to the asset's maturity and some demand elasticity as toll rates continue rising.

Price Risk: Midrange

AMT has continued to raise tolls at the maximum allowed under the concession agreement, with a CAGR of around 5% since operations commenced. Previous toll prices increases of AUD0.50 increments introduced some volatility in traffic growth which tended to flatten after each increase. Tolling moved to quarterly increases in 2013, which was facilitated by fully-electronic tolling, eliminating this volatility. ED tolls are AUD6.75 for cars and AUD13.49 for other vehicles as at June 2016, and are charged only in the northbound direction.

Debt Structure: Midrange

The bullet debt structure, while typical of the Australian market, is a weaker feature. However AMT and its main sponsor, Transurban (rating on Transurban Finance Company Pty Limited: A-/Stable), have proven records of refinancing debt well in advance of maturity. AMT's AUD295m of bank debt due to mature in 2014 was refinanced more than six months in advance with a capital markets issue, extending the tenor from three years to seven years and lowering borrowing costs. AMT benefits from Transurban's global banking relationships and capital markets experience. There is no interest-rate risk on AMT's current debt tranches, as they are fully hedged (or fixed-rate) to maturity. Structural features include interest-rate hedging requirements, a higher interest coverage cash lock-up than the previous loan package and a one-year maintenance letter of credit.

Infrastructure Development and Renewal: Stronger

Transurban conducted a thorough review of the ED's maintenance requirements in FY13, identifying a number of issues to address. The maintenance has now been completed, and was fully funded from operating cash flow. AMT derives substantial benefit from leveraging Transurban's contractor relationships and purchasing economies of scale. Lenders benefit from a 12 month letter of credit for major maintenance expenditure. Management does not expect to develop the ED above its current capacity of 77,000 vehicles per day and plans to continue maximising revenues from existing traffic to meet debt servicing.

Debt Service

AMT has demonstrated ability to withstand downside events and maintain robust historical interest-only coverage. Forecasted debt service coverage in Fitch's rating case is robust, with a minimum concession life coverage ratio of 3.5x, indicating a strong ability to retire debt over the concession term. Average debt/cash flow available for debt service (CFADS) over the next five years is forecast to be around 5.2x in this scenario, comparable to similarly rated peers. Fitch's rating case assumes toll rate increases of 4% a year, medium-term traffic growth of 1% due to adverse price elasticity, and moderate stress to operating and maintenance costs and interest rates. Fitch's rating case debt assumes debt amortisation commences in 2019, as required under the concession agreement, and is fully amortised by 2031, providing a 17-year tail prior to the end of the concession in 2048.

Peer Analysis

AMT's closest peer is Sydney-based WSO Finance Pty Limited (Westlink M7; A-/Stable). The two roads have similar concession terms and leverage levels. The ED has the ability to raise tolls at a faster rate than Westlink M7 when inflation is less than 1% per calendar quarter, and has a higher minimum concession life coverage ratio. The ED is a more mature road, with a longer operating and traffic history, although its recent traffic and revenue growth is lower compared with Westlink M7. Fitch has also compared AMT with two European toll-road issuers - Atlantia S. p.A. (A-/Stable) and SIAS S. p.A. (BBB+/Stable). Both issuers' road networks are much larger than the ED's and have had more volatile traffic flows in the past ten years, although the ED's resilience in a downturn has not been tested due to Australia's long run of economic growth. AMT has higher leverage than Atlantia S. p.A. and Sias S. p.A., but a longer concession tenor.

RATING SENSITIVITIES

AMT's ratings would come under downward pressure if net debt/CFADS remains above 6.0 for a sustained period in Fitch's rating case, such as in the event of prolonged weakening in traffic or operational difficulties, or if there was any difficulty in refinancing debt as it matures.

Fitch may upgrade AMT if net debt/CFADS falls below 4.5x for an extended period, both historically and on a projected basis in Fitch's rating case.

SUMMARY OF CREDIT

AMT is the borrowing entity for the Airport Motorway Group, which holds the 48-year concession to operate Sydney's 6km ED motorway. The ED links Sydney's central business district, the Sydney Harbour Tunnel and Sydney Harbour Bridge with the city's southern suburbs and Sydney Airport. The main plaza opened in December 1999 and traffic is well-established over its 16-year operating history.