OREANDA-NEWS. Fitch Ratings has affirmed Autoroute Paris-Rhin-Rhone's (APRR) Long and Short-term senior unsecured ratings at 'BBB+' and 'F2' respectively. The agency has also affirmed APRR's Long-term Issuer Default Rating (IDR) at 'BBB+' with Stable Outlook and its Short-term IDR at 'F2'. APRR is a French-based infrastructure group and one of the largest toll road operators in Europe.

The affirmation considers APRR's solid and stable cash flow generation, which should support progressive deleveraging over the medium term. The lack of structural enhancements in APRR's debt structure is balanced by a solid liquidity position, well-established access to capital markets and diversified range of bullet maturities that mitigates refinancing risk.

In the analysis of APRR, Fitch also considered debt held at Eiffarie SAS (Eiffarie, Hold.Co) level which is almost entirely serviced with APRR (Op.Co) dividend distributions. Debt allocation between Hold.co and Op.co has recently changed. In November 2014 APRR issued EUR1.4bn bonds whose proceeds were largely (EUR1bn) used to reduce Eiffarie's debt. Post transaction, APRR debt accounts for 86% of consolidated debt and its LT IDR is therefore aligned with the consolidated group credit profile which Fitch is re-assessing at 'BBB+' (from 'BBB').

The reassessment considers the recent solid traffic performance of the asset, the materially reduced refinancing risk at Hold.Co and expected reduction of group leverage which will also benefit from the scheduled amortisation of debt sitting at Eiffarie level.

KEY RATING DRIVERS
Revenue Risk: Volume - Stronger
APRR is a large and diversified network (2,300km+) with demonstrated resilience in its traffic performance through the financial crisis (AADT peak to trough, -1.9% in 2009) due to the strategic location of its core network (connecting Paris and Lyon, France's two main economic centres) as well as a diversified customer mix (commercial, commuter and tourist).

The steady growth of light vehicles sustained traffic performance in 2014 (1.6%) and 1H15 (2.2%). Under Fitch rating case (FRC), which includes some protection against downside risk, traffic will increase 1% annually over the concession period.

Revenue Risk: Price - Midrange
APRR typically recovers its capex through CPI-linked tariff increases. It recently agreed with the regulator an additional capex plan of EUR720m in exchange of 2.1 years of concession extension (3.8 years for subsidiary AREA). The agreement balances the government's need to support economic activities with APPR's contractual right to keep the concession financially balanced. As part of this agreement the government has agreed to compensate APRR and AREA for the tariff freeze in 2015 (as well as for land tax increase passed in 2013) via supplemental toll adjustments over the 2016-2023 period (on average 0.38% p.a.). New concession terms also include other targeted measures to enhance stability of the concession contracts such as improvements of protection against future adverse changes to motorway-specific taxes (art. 32).

Infrastructure Development/Renewal - Stronger
Network maintenance is large-scale but generally of low complexity. Fitch believes APRR is well equipped to deliver the recently-agreed additional EUR720m of extension/widening works based on its long track record in this respect.

Debt Structure - Midrange
The non-amortising nature of APRR's debt and the lack of material structural protection are weaknesses. However, this is adequately mitigated by a strong liquidity position which comprises cash and significant standby liquidity (recently increased to EUR1.8bn from EUR0.7bn). Exposure to refinancing risk is mitigated by demonstrated access to bond markets, a well-diversified range of bullet maturities and a track record of proactive and prudent debt management policy.

Debt Service
Fitch expects a consolidated leverage of 5.6x at end 2015. The group has been able to deleverage at the consolidated level even during five years of adverse economic activity, underlining its strong resilience. Under FRC, leverage is expected to decrease progressively to around 5x in three years. The scheduled debt amortisation at Eiffarie level will sustain the deleveraging process.

Peers
The main peers for APRR are Atlantia (A-/Stable), Abertis (BBB+/Stable) and Brisa (BBB/Stable). Brisa has similar leverage levels but APRR's traffic has proved much more resilient during the economic downturn. Abertis displays lower leverage (3.9x) but a much shorter concession maturity and also weaker historical traffic performance. Compared with Atlantia, APRR has shown significantly higher traffic resilience but suffers from a more complex Hold.co-Op.co debt structure and is currently more leveraged (2015 expected net debt/EBITDA at 5.6x in FRC vs 4.3x for Atlantia).

RATING SENSITIVITIES
Leverage (consolidated net debt/EBITDA) steadily below 5.0x under FRC could result in positive rating action.
Conversely, a deterioration of APRR's operating and financial performance leading to leverage (consolidated net debt/EBITDA) sustainably above 6.0x on a three-year forward-looking period under FRC would likely bring pressure onto the rating.

SUMMARY OF CREDIT
APRR's activities are exclusively focused on a core network covering the north-western axis of France. Fitch views APRR's standalone credit quality at the higher end of the European peer group in light of a strong asset profile and moderate leverage.

In rating APRR, Fitch applies its corporate rating methodology to assess the strength and the nature of the Op.Co-Hold.Co relationship while it applies its infrastructure and toll road-specific criteria to determine key rating drivers, metrics and eventually the rating of the consolidated credit profile i.e. aggregating all debt and all effective cash flows (on a pari passu basis) of both Op.Co and Hold.Co.