Fitch Affirms Invepar's IDRs at 'BB-'; Outlook Stable
The ratings remain based on Invepar's strong portfolio of diversified assets in low-risk industries within Brazil's transportation infrastructure sector. These businesses enjoy strong long-term fundamentals, including higher resilience than industry peers during economic downturns, moderate- to high-profitability, and consequently, positive trends in dividend distribution as Invepar's subsidiaries mature.
The ratings also take into consideration that Invepar will continue to be supported by its shareholders, which reduces the holding company's (holdco) current pressure related to short-term debt refinancing and equity requirements for the next two years. The proven financial support from its main shareholders supports this assumption, with about BRL3.2 billion in support since 2009. This explicit financial support is a key element of Invepar's capital structure, while the company receives an incipient amount of dividends at least for the next three years. The ratings are constrained by the company's highly leveraged capital structure at the holdco level and, on a consolidated basis, mostly through project finance debt at the operating project subsidiaries.
KEY RATING DRIVERS
HoldCo Debt High; Cash Flow Tight
As of June 2015, the holdco had high debt of BRL1.1 billion to be served up to August 2016. New equity investment into its projects are expected, which should materially increase holdco debt by 2015. Fitch's base case scenario estimates that Invepar's current debt service will not be covered by dividends and should be supported by the shareholders. The dividends received by Invepar up to 2018 will come primarily from Linha Amarela S.A. (Lamsa, rated 'A(bra)'; Stable Outlook), Concessionaria Rio-Teresopolis (CRT, rated 'AA-(bra)'; Stable Outlook) and Concessao Metroviaria do Rio de Janeiro S.A (Metro Rio; from 2016 onwards). Fitch's projections estimate Invepar should receive BRL50 million-BRL100 million during 2015, increasing to about BRL100 million-BRL150 million in 2016, benefitting from the start of dividends from MetroRio. In 2014, Invepar received BRL102 million of dividends, BRL96 million from Lamsa and BRL6 million from CRT.
Financial Flexibility Provided by Shareholders
The support of these shareholders is a key rating consideration. Invepar put in place a significant expansion plan over the last three years, with relevant support from three of its four shareholders (corresponding to 75% of Invepar's capital). Between 2009 and 2012, these entities jointly provided Invepar with around BRL3 billion of cash to fund its growth. Fitch understands that potential support of shareholders is likely, based on the track record of capital injections since 2009. It mitigates the higher leverage at the holdco level and should result in a reduction in current refinancing risks, with long-term capital structure improvements.
In addition to the three pension funds that are shareholders, Group OAS currently owns 25% of Invepar's stake. Fitch does not see material contamination from OAS's Chapter 11 process to Invepar's credity quality. Besides being a minority shareholder, Invepar has never depended on OAS's support. The sale of OAS's 25% shares of Invepar is likely to bring more flexibility to the other shareholders to continue its strategy of supporting Invepar.
Low Business Risk and Growing EBITDA
Invepar's ratings continue to reflect the group's diversified portfolio within Brazil's transportation infrastructure sector. The 15 subsidiaries owned by Invepar are well distributed in the toll road, airport, and mass transit segments, which generally provide stable and predictable cash flow generation. As of June 2015, 12 out of a total of 15 subsidiaries were operational.
Invepar has reported significant increases in its consolidated EBITDA generation, resulting from the maturing of recent projects and the start-up of pre-operational assets. As of June 2015 LTM, pro forma EBITDA, which takes into account the proportional stakes of Invepar in its subsidiaries, more than doubled when compared to 2012, as a result of the development of some businesses, including Concessionaria Auto Raposo Tavares (CART), MetroRio, GRU Airport and VPR. During this period, pro forma EBITDA reached BRL1 billion, compared to BRL826 million in 2013 and BRL265 million in 2012, according to Fitch's calculation. Fitch expects Invepar's subsidiaries to generate BRL2 billion in net revenue, BRL1.3 billion EBITDAR, and BRL200 million of dividends by 2018.
High Leverage Should Decline Gradually
According to Fitch's base case scenario, Invepar's pro forma net adjusted debt-to-EBITDAR ratio is expected to remain high, close to 12x by the end of 2015. The high leverage levels are partially mitigated by the potential cash generation from the projects under development, which should bring net leverage to below 8.0x, by 2018. On June 30, 2015, on a pro forma basis, considering the proportional stake of Invepar in its assets, the company had total debt of BRL15.2 billion (including BRL6.01 billion in concession obligations) and cash and marketable securities of BRL 1.5 billion. The holdco's debt was BRL1.1 billion due in 2016, and had cash of BRL41 million.
KEY ASSUMPTIONS
-- Success in the company's strategy to refinance the BRL1 billion of holdco debt and the BRL2 billion of project bridge loans, over the next six to nine months;
-- Brazil's GDP variation of -1.5%, in 2015 and +0.7% in 2016;
-- Inflation rates of 7.4% in 2015 and 6.5% in 2016;
-- Pro forma EBITDA margin on net revenues (excluding construction revenues) of 40% in 2015, increasing to 50% in 2016, according to Fitch's calculation.
-- Pro forma net leverage-to-EBITDAR of 11.5x by 2015.
RATING SENSITIVITIES
Rating upgrades are unlikely in the medium term due to the challenges Invepar faces to improve its capital structure.
Invepar's ratings could be downgraded if Invepar is not able to refinance its short-term debt over the next few quarters and if there should be evidence that shareholders' support weakened. Negative rating actions could occur if there is a significant deterioration in the group's operating performance, mainly from Lamsa and Metro RioAcquisitions, and investments financed by additional holding company debt could also trigger a negative rating action.
LIQUIDITY
Invepar's current liquidity is low. On a pro forma basis, as of June 30, 2015, Invepar had BRL3.1 billion of debt to be repaid over the next 12 months, including about BRL664 million at the holdco level and BRL1.8 billion of bridge loans on its projects. An additional BRL470 million at the holdco level will be due in August 2016. Invepar's pro forma cash on hand of BRL1.9 billion is committed, with future mandatory capex.
Fitch foresees that Invepar's projects will be able to issue long-term debt in order to refinance the bridge loans, supported by their expected improving cash generation. Besides this, Fitch believes the holdco is likely to succeed in its plan to achieve a more conservative capital structure, lengthening its debt amortization schedule and cushioning its short-term pressures based on additional support from shareholders.
FULL LIST OF RATING ACTIONS
Fitch affirms the following ratings:
-- Foreign- and local-currency Issuer Default Ratings (IDRs) at 'BB-';
-- Long-term national scale rating at 'A(bra)'.
The Rating Outlook is Stable.
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