OREANDA-NEWS. July 06, 2015. Fitch Ratings has affirmed Ferrovial, S.A.'s Long-term Issuer Default Rating (IDR) at 'BBB' and Short-term IDR at 'F3'. The Outlook on the Long-term IDR is Stable. Fitch has also affirmed the 'BBB' senior unsecured rating of the subsidiary, Ferrovial Emisiones S.A.

The affirmation reflects the healthy order book and revenues visibility at both construction and services divisions, the bidding discipline and the strong liquidity available at the recourse level.

Fitch adjusted leverage calculations to reflect the ring-fenced nature of the infrastructure business by excluding related funds from operations (FFO) and non-recourse debt but including sustainable dividends from its own assets/investments.

KEY RATING DRIVERS
Solid Recourse Business
The recourse business - Fitch's rating perimeter - is healthy, with FY14 revenues and margins growth driven by the performance of the services division (+16.5% in revenues and +13.7% EBITDA on a like-for-like yearly basis). Despite a slight decrease in revenues in the construction activity (-1.0% l-f-l), the division's margins in FY14 were aligned with the previous year (+0.2% EBITDA) supported by profitable works carried out in Poland (through its subsidiary Budimex) and the US. 1Q15 results confirmed the buoyant momentum, with positive orders inflow leading to an all-time-high order book.

Robust Backlog
As at March 2015, the backlog of the construction and services divisions peaked at over EUR30bn, reaching EUR8.6bn and EUR23.5bn respectively. Fitch views positively the order book split skewed towards services business, which typically has more predictable and stable revenues, and higher margins. More than 70% of the combined backlog is located abroad in low risk countries such as the US and UK, reflecting management's reluctance to bid for risky projects.

Services Strengthening Business Profile
The business mix has improved over the past few years with the increasing weight of the services division, accounting for the half of the group's total revenues and around 40% of the consolidated EBITDA, excluding dividends. The services division has a strong presence in Spain and the UK - the latter strengthened with the acquisition of Enterprise in 2013 - as well as a developing activity in Chile, Poland, Qatar, US and Australia.

Performing Investments
Ferrovial's main assets - Highway 407 and Heathrow Airport (HAH) - improved their revenues and EBITDA, aided by all-time traffic records. The two combined investments contributed in 2014 for over 45% of the recourse EBITDA + dividends, including the extraordinary dividend paid by HAH following the disposal of Aberdeen, Glasgow and Southampton airports (AGS) to a 50/50 consortium set up by Ferrovial and Macquaire Investments Ltd. For the coming years, Fitch expects the toll roads division to continue to deliver solid dividends (EUR255m in FY14), while the expected recurring dividends from HAH for the next two years should be aligned with the 2014 figure (EUR126m) in the absence of other special returns.

KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Single digit revenue growth driven by the services division, consolidating its weight within the group
- Decreasing margins in the construction business after the completion of the highly profitable LBJ and NTE toll roads in US
- Stable dividends flow from the toll roads divisions, partially increasing in the airports with the contribution of AGS
- Potential M&A activity focused on small-mid size companies operating in developed countries

RATING SENSITIVITIES
Future developments that may, individually or collectively, lead to positive rating action include:
- Material improvement in the operating risk profile of Ferrovial's construction and services segment
- Increase in diversification and quality of its dividend streams
- Positive free cash flow on a sustained basis
- Fitch-adjusted gross FFO leverage below 1.5x (FYE14: 1.6x) on a sustained basis

Future developments that may, individually or collectively, lead to negative rating action include:
- Significant decrease in order backlog or loss of cash flow visibility
- Evidence that the recourse group is providing material financial support or guarantees to under-performing non-recourse projects
- Fitch-adjusted gross FFO leverage above 3.0x on a sustained basis

LIQUIDITY AND DEBT STRUCTURE
Capital Market Funding
As at FYE2014, borrowings mainly comprised capital market funding, with bonds issued in the last two years for a total EUR1.3bn. Other financial debt of EUR0.1bn is mainly related to bank loans and finance leases of the services and construction divisions.

Strong Recourse Liquidity
In March 2015 Ferrovial signed a five-year EUR1,250m syndicated revolving credit facility (extendable to seven years) increasing committed unsecured undrawn facilities at around EUR1.5bn at the group level. Following the EUR300m bond issued in July 2014, there are no significant maturities until 2018.