OREANDA-NEWS. Fitch Ratings has affirmed ABP Finance PLC's (ABP Finance) senior secured notes and programme ratings at 'A-'. The Outlook is Stable. ABP Finance is a financing vehicle of Associated British Ports (ABP), which is UK's largest port-owning and operating company. ABP operates under an issuer-borrower structure with ABP Acquisitions UK Ltd (ABPA) as the borrower and ABP Finance, the issuer.

The affirmation reflects ABPA's strong and resilient business profile and its performance being broadly in line with Fitch's expectations in 2014 and 1H15. Revenue and EBITDA grew 3% and 5.7%, respectively in 2014, slightly ahead of Fitch's base case expectations.

In addition, ABP in 2014 issued GBP450.8m of USD and GBP private placements and GBP400m of revolving credit facilities (RCF), to refinance in full all facilities maturing in 2016. Debt was issued with maturities between 2022 and 2030, at favourable rates. The RCF replaced previous working capital and capex facilities maturing in 2016.

KEY RATING DRIVERS

Revenue - Volume: Stronger
ABPA's dominant market position in a captive island market, its diversity - both in terms of client base and geographical spread - and the strategically sound location of its facilities near key industrial facilities that underpin key cargo lines point to a 'Stronger' assessment of volume risk. While tonnage volumes were down 4% yoy in 1H15 to 46 million tonnes, associated commodity revenue was up 3.2%, demonstrating the strength of ABPA's revenue structure. Passenger volumes were up 3.6% during the same period and associated non-commodity revenue was up 5.3%.

Revenue - Price: Stronger
ABPA's predominantly "landlord" business model features protective contractual arrangements with key customers and price flexibility. This enables the company to minimise volatility related to operating risk, which leads to fairly stable cash flow comprising mostly contracted payments. Customers are strategically 'locked in' by joint project investments on or near ABP's land; nearly 50% of revenue is either contractually fixed or subject to minimum guarantees as of end-June 2015.

Infrastructure Development /Renewal: Stronger
ABPA has significant capex planned over the next five years. However, the 'Stronger' attribute for this key rating driver is supported by the company's detailed capex and maintenance planning, strict criteria for engaging in growth capex projects, significant co-investments with customers, and the straightforward nature of maintenance of its port facility.

ABP completed the Southampton container port expansion and commenced operations in 1Q14. Container activity increased 17.3% in 2014 and 8.2% in 1H15. Work is also continuing on the Immingham Fuels Renewables Terminal and the Green Port Hull project with Siemens - expected completion in 2016/17. ABP also acquired an industrial estate at Marchwood in 1H15 for GBP94m. These projects are expected to bring additional revenues to ABP starting from 2016-2018.

Debt Structure: Midrange
ABPA implemented a secured and covenanted debt-raising programme in 2011. Documents contain generally strong structural features, including a 12-month debt service reserve account and hedging of debt to fixed-rate. While ABP Finance's issued bullet debt carries refinance risk, the company has accessed EMTN and USPP markets successfully, and debt maturities are becoming less concentrated, including through the successful refinancing in 2014.

The Marchwood acquisition in 2015 was made in conjunction with the loosening of some structural covenants (including a backwards-looking revenue test for permitted acquisitions and a restriction on lending to subsidiaries). In Fitch's view, these changes did not materially alter our 'Debt Structure' risk factor assessment, although if ABP management engages in acquisitions that materially affect the stability of revenues /cash flows, ABP's rating could suffer.

Financial Metrics
ABPA had fairly high leverage over its early years, although this is expected to decrease in Fitch's rating case from 2016-2019. Performance in 2014/1H15 was in line with our rating case. Average rating case Fitch-adjusted net debt/EBITDA for 2015-2019 is 7.28x and average synthetic 25-year annuity debt service coverage ratio (DSCR) for the same period is 1.74x. Both metrics are in line with the agency's guidance for 'A' category ratings.

RATING SENSITIVITIES
The ratings may be downgraded if ABPA makes any acquisitions that materially increase cash flow volatility or if ongoing infrastructure development projects suffer significant cost or time overruns, which in turn could affect ABPA's revenue growth. The ratings could also be downgraded if projected five-year average Fitch-adjusted net debt/EBITDA rises above 7.5x or synthetic DSCR falls below 1.6x in our rating case.

Fitch does not expect to upgrade the ratings in the short- to medium-term unless ABPA materially deleverages during this period.