OREANDA-NEWS. Fitch Ratings has affirmed the long-term rating assigned to ENA Norte Trust USD600 million secured debt due 2028 at 'BBB'. Fitch has also affirmed ENA Norte's national scale ratings at 'AAA(pan)'. The Rating Outlook is Stable.

The rating affirmation reflects the essential and long lived nature of Corredor Norte, a price setting framework that provides some flexibility to adjust toll rates, an adequate infrastructure maintenance plan, and a strong debt structure that includes adequate liquidity mechanisms and structural features to cover timely debt service obligations.

The Stable Outlook incorporates the view that traffic and revenue levels will improve upon completion of the Phase IIB road segment and the ability of ENA Norte to regain some of the traffic that had been diverted to Domingo Diaz road.

KEY RATING DRIVERS

Stable Performance (Revenue Risk: Volume - Stronger): Corredor Norte is an instrumental road for commuters and commercial traffic. The road connects Albrook airport in the West, to Brisas del Golf in the East of Panama City, and serves a large commuting base with growing economic and commercial activities. Despite recent traffic declines, existing traffic levels remain higher than original base case expectations. Completion of ENA Este (Phase IIB) road segment is expected to augment traffic volume.

Sufficient Tariff Levels (Revenue Risk: Price - Midrange): ENA Norte is authorized to increase toll rates for inflation on an annual basis, subject to government review. Tariffs have remained unchanged since initial rating, but price elasticity is expected to be low given existing congestion and residents placing greater value on time savings.

Adequate Infrastructure Program (Infrastructure Development/Renewal - Midrange): The 33.4 kilometers concrete road is in satisfactory condition. The asset is operated by Maxipista de Panama S.A., a wholly owned subsidiary of ICATECH. Maxipista is a proven and experienced operator in Panama having managed ENA Sur for many years. The operating quality and performance of the operator is closely monitored by the ENA.

Robust Structural Features (Debt Structure - Stronger): The project is structured with a pass-through amortization scheme that prohibits cash distributions while the notes are outstanding and employs all excess cash for the repayment of principal. Liquidity reserves, particularly for debt service, are considered sufficient to maintain financial stability during stressed periods.

Significant leverage: ENA Norte's level of indebtedness is significant and requires a certain level of traffic growth and stability in toll rates to preserve sound financial performance. Given the pass through debt structure, the asset is expected to deleverage at an accelerated speed with full debt repayment in year 2024 and 2026 under the base and rating-case bases, respectively. The project generates sufficient revenues to maintain financial coverage ratios consistent with its rating category with minimum loan life coverage ratios (LLCR) of 1.51x and 1.21x under the base and rating-case scenarios, respectively.

Peer Analysis: ENA Norte compares favourably with ENA Este (rated 'BBB-'/'AA+(pan)' by Fitch) due to its strategic and established service area and low reliance on significant traffic growth. Conversely, ENA Norte's leverage is higher than that of ENA Sur, rated 'BBB'/'AAA(pan)' by Fitch.

RATING SENSITIVITIES

Negative
---Inability to reduce leverage to below 9x Net debt/EBITDA by the end of 2016;
--Significant and sustained traffic contraction resulting from an adverse economic environment and/or increased modes of competition.

Positive
--In the intermediate term a sustainable improvement in ENA Norte's traffic and revenue performance may result in a positive rating action.

SUMMARY OF CREDIT
ENA Norte's traffic declined modestly in 2014 with volume decreasing by 1.8% and revenue by 2.9% compared to 2013. A combination of factors contributed to the road's performance including the usage of the Panama City Metro Line and the Metro Bus system. Improvements in alternative free roads such as Domingo Diaz also contributed to the traffic decline.

For the first eight months ending August 2015, both traffic and revenues were down by 5.6% and 4.7%, respectively, on a year-over-year basis. However, ENA Norte has benefitted from strong historical performance since the initial rating. As a result, traffic volume at 53 million and revenues at USD70 million for 2014 were both above base case expectations.

The four-year construction period related to the expansion of the Metro Line along Domingo Diaz is likely to diminish the time saving benefits of the free road and divert commuters back to ENA Norte. Moreover, continued growth in Panama and the completion of ENA Este (Phase IIB) expected by November 2015 are likely to have a positive impact on ENA Norte.

Operating expenses for 2014 at USD14 million were notably higher than 2013 figures. The increase was principally due to expenses related to the implementation of the Panapass electronic tolling system completed earlier in 2015. The system is expected to significantly improve the traffic flow at toll booths as drivers no longer need to scan proximity cards and also do not have the option to recharge balances. Concurrently, major maintenance increased to USD2.5 million versus USD1.1 million mainly due to road resurfacing along Phase II and other road segments. Going forward, operating and major maintenance expenses are expected to normalize.

The macroeconomic health of the country is supported by Fitch's view of the Panamanian sovereign. The country's rating was affirmed at 'BBB' with a Country Ceiling of 'A' in February 2015. Economic growth in Panama is expected to average 6% in 2015-2017, the highest in the 'BBB' category.

Corredor Norte is divided into three sections (Phase I, Phase II, and Madden Segment): Phase I is an operating 12.7-kilometer (8-mile) toll road that extends through the northern of Panama City and connects Albrook airport to Tinajitas.

Phase II is divided into Phase IIA and Phase IIB. Of Phase II, only toll-collection rights of Phase IIA are assigned to ENA Norte Trust. Phase IIB is financed separately with different security/collateral. Phase IIB is currently under construction and, once completed, will connect the eastern end of Phase IIA with the Pan-American Highway in the Tocumen area at the international airport.

The Panama-Madden Segment is a 13.5-kilometer (8.4-mile) toll road that intersects Phase I on the eastern end and runs northwest, connecting to the Interstate Colon Highway.