OREANDA-NEWS. Fitch Ratings has affirmed the long-term rating assigned to Lima Airport Partners S.R.L USD 164 million senior notes due in 2022 at 'BBB+'. The Rating Outlook is Stable.

The affirmation results from continued solid operational and financial performance in line with Fitch's expectations. The rating reflects the strength of the transaction's underlying airport asset and its ability to generate sufficient cash flow to support debt obligations. Strong demographic fundamentals, connectivity to main South American economic centers, and limited viable competition make the airport an attractive and strategic hub. The rating also reflects the ring-fenced financing structure, which isolates the asset from the operator's solvency, and early termination risks.

Necessary expansion measures under the concession agreement will require increased debt in the medium term although the timing for certain projects has been pushed back several years. Still, considering conservative investment cost and borrowing assumptions, leverage levels are consistent with the 'BBB+' rating.

SECURITY

The notes are secured by all revenues at JCIA collected in connection with the services and facilities furnished by LAP, all assets including all the issuer's rights under the Concession Agreement pursuant to the Trust Agreement.

KEY RATING DRIVERS

Key International Gateway with Robust Traffic Base [Revenue Risk - Volume: Stronger]: Located in Lima, Peru, the Jorge Chavez International Airport (JCIA) serves as the main gateway to the country, serving over 90% of the total international air traffic of Peru. The enplanement base has grown at a favorable average annual rate over its life. The airport is primarily an origin and destination (O&D) facility, with only 8% of passenger traffic related to transits/transfers. LATAM Airlines Group S.A. (LATAM, rated 'BB-'; Outlook Stable) constitutes over half of the total traffic at JCIA. However, counterparty risk is partially mitigated by the high O&D concentration of the airport.

Transparent Rate Adjustment Mechanism [Revenue Risk - Price: Midrange]: The project's concession agreement includes a predetermined formula to adjust rates annually, which allows for cost recovery on a timely basis. Rates at the airport are competitive in the region, and provide for an adequate revenue generation to meet improvement requirements and financial obligations.

Capital Investment Program Requires Additional Funding [Infrastructure Development & Renewal: Midrange]: The airport will require a significant investment program to execute the construction of a second runway, as established in the concession agreement, and to expand the airport to meet future demand. Final cost figures and funding sources will be determined at a later date. Current planned maintenance and budget are considered suitable to sustain the facilities.

Adequate Debt Structure [Debt Structure: Midrange]: LAP's notes are issued with a fixed coupon rate and follow a quarterly amortizing schedule. With a nine-year tail, the notes have low refinancing risk. Other structural protections include an insurance policy covering nine months of debt service, and distribution tests of 12-month, backward looking, minimum Debt Service Coverage Ratio (DSCR) of 1.25x for every remaining quarter.

Strong Financial Metrics: LAP's debt burden is low when compared to its revenue profile, as reflected by a maximum net debt-to-CFADS (Cash Flow Available for Debt Service) ratio of 2.89x. Debt service coverage is high, with an average of 3.40x in our Base Case, and has limited dependence on traffic growth. Additional leverage considered in the scenarios has moderate effect on financial flexibility. Sound margins position LAP in a favorable situation to overcome external adverse events.

Peers: LAP compares favorably with Latin American peers such as the Tocumen International Airport in Panama, rated 'BBB'; Outlook Negative. Tocumen Airport is also an international gateway; however, the O&D concentration is significantly lower at 53% and leverage and coverage metrics are also weaker at 6.25x net debt-to-CFADS and 1.86x avg. DSCR, versus 0.27x and 3.40x, respectively.

RATING SENSITIVITIES

--Negative: Debt financing of the capital investment program materially reducing financial flexibility beyond expectations could result in a downgrade of the notes.

--Negative: Sustained and material deviation below the traffic growth projections in Fitch's Base Case could lead to a rating downgrade.

--Positive: Although unlikely in the short term, sustained and material growth above Fitch's Base Case projections could cause a positive rating migration.

SUMMARY OF CREDIT

The airport continues to benefit from its strategic location and infrastructure facilities resulting in higher domestic, international, and cargo levels. Historical traffic stability is underpinned by an adequate mix of leisure and business travelers and a growing domestic middle class.

Total air traffic for the airport reached approximately 15.7 million passengers in 2014. Domestic traffic represents over 50% of total air traffic at JCIA, highlighting greater consumer demand for air transport over other modes in Peru. Traffic growth during January-October 2015 was strong, with a 9.2% increase compared with the same period in 2014. Fitch views annual growth in the 3% - 4% range over the next several years as conservative assumptions. JCIA has a significant carrier concentration with LATAM having the largest presence via their LAN and TAM airline brands.

Additional debt is projected to be issued to fund the capital expenditures (capex) program which includes the construction of a new terminal and a second runway. Fitch expects increased debt financing associated with these investments to increase leverage at levels commensurate with the assigned rating.

While construction of the runway is expected to begin in 2016, it cannot start until all the land where it will be constructed is delivered by the government. At the end of 2015, only about 50% of the land has actually been delivered. As established by the Concession Agreement, LAP will have five years to complete the construction of the second runway after 100% of the land is received.

Construction of the new terminal is expected to be carried out in phases, in order to allow flexibility of timing so that capacity demands are met as reached. As of the end of 2015, the conceptual design for the new terminal and second runway remains in progress.

Fraport's global expertise continues to maintain the airport in optimal conditions, allowing for more efficient services and keeping operating expenses relatively stable. During the first 9 months of 2015, total operating expenses (opex) increased approximately 0.2% with respect to the same period in 2014, maintaining an adequate cost profile.

Tariffs remained relatively constant and include the revised adjustment metric (x-factor) established by Organismo Supervisor de la Inversion en Infraestructura de Transporte de Uso Publico (OSITRAN) for the 2014 - 2018 period of 0.05%.

The JCIA Concession was granted by the Ministry of Transportation, Communications, Housing and Construction (MTC) of the Peruvian Government and expires in 2031, nine years after the maturity of the rated notes. LAP has an automatic right to extend the concession term for an additional 10 years upon delivery of written notice to the MTC. The concession renewal would support the credit to the extent LAP moves forward with additional borrowings for the terminal and runway projects.