KBRA Affirms BBB- Rating and Revises Outlook to Positive From Stable on Autopistas Metropolitanas de Puerto Rico, LLC’s Senior Secured Notes
29 Mar 2024 | New York
KBRA affirms the BBB- ratings and revises the Outlook to Positive from Stable on Autopistas Metropolitanas de Puerto Rico, LLC’s $435 million, 6.75% senior secured notes due June 30, 2035, $181 million, 7.5% senior secured notes due December 31, 2038, and $120 million, 7.0% senior secured notes due December 31, 2038.
Autopistas Metropolitanas de Puerto Rico, LLC (Metropistas) operates and maintains the Puerto Rico Highway 5 (PR-5) and Puerto Rico Highway 22 (PR-22) pursuant to a toll road concession agreement dated June 27, 2011, with the Puerto Rico Highway Transportation Authority (PRHTA). Metropistas is owned by Abertis Infraestructuras, S.A. and Ullico Inc. The senior secured notes are pari-passu and cross-collateralized by the membership interests in, and all assets of, Metropistas; in particular, the rights of Metropistas under the concession agreement.
Key Credit Considerations
(+) Strong Traffic and Revenue Performance in 2023
Total transactions in 2023 were 3.6% above the sponsor’s budget, and 2% higher than the KBRA rating case. An increase of 8.5% to toll rates effective January 1, 2023, resulted in 2023 revenues exceeding the sponsor’s budget by 3.6%, and KBRA’s rating case forecast by 6.0%. Year-over-year (YoY) growth rates for annual average daily traffic (AADT) and annual average daily revenue (AADR) were 4.8% and 16.7%, respectively.
(+) Strong Financial Performance
Operating expenses in 2023 were only 2.7% higher than the sponsor’s budget, but 31.3% lower than KBRA’s forecast. The YoY increase in operating expenses of 4.7% was mainly due to inflation impacting certain materials. Cash flows available for debt service (CFADS) had a similar positive performance, with a YoY growth of 23.7%, and also compared favorably against both the sponsor’s and KBRA’s forecast, exceeding these by 8.9% and 14.3%, respectively. As a result, quarterly debt service coverage ratios (DSCR) during the year were higher than the KBRA’s expectations.
(+) Sponsor’s Forecast Performance for 2024
The sponsor expects 2024 to continue with the positive trend observed in 2023, with a 7.9% increase in project revenues, a 0.8% increase in operating expenses, and a 19.4% increase in CFADS.
Rating Sensitivities
Higher traffic volumes coupled with higher toll rates that result in better-than-expected revenues could result in a rating upgrade. Sustained lower-than-expected operating and capital expenditures could also impact the rating. A significant improvement in the economics of Puerto Rico that results in an increase in traffic could also result in a rating upgrade.
Lower-than-expected tariff increases due to an extended period of deflationary pressures could impact the revenue generation profile of the project and the rating. Similarly, lower-than-expected traffic volumes and/or a trend of higher-than-forecast operating and capital expenditures for a sustained period could result in a ratings downgrade.
ESG Considerations
Environmental Factors
A carbon tax or other carbon pricing mechanism could make driving more expensive and result in lower traffic levels. Metropistas’ ESG plan (currently under development), will continue the efforts to deploy microgrids, which have already been installed in the main toll plaza building, in the rest of the toll plaza facilities to offset their fossil fuel consumption. In the long term, this strategy could also protect the project from future energy costs increments and improve overall asset resiliency.
Social Factors
Metropistas is exposed to social changes that could impact the way people work and live and that could ultimately result in lower use of the roads. As part of the implementation of their new ESG program, Metropistas will launch local projects to improve the overall sustainability of the community.
Governance Factors
As a project finance transaction with strong covenants, Metropistas has limited impact of governance factors. In order to align with the sponsors’ ESG plans, Metropistas developed an ESG plan that will ultimately focus on reaching carbon neutrality and improve the community’s sustainability.
Rating Rationale
Under the KBRA rating case, the average and minimum DSCRs are 2.31x and 1.45x. KBRA considers a KPRS Score of average along with average DSCRs of 2.31x sufficient for a transaction with traffic risk in Puerto Rico to support a rating of BBB- on the notes. The Positive Outlook reflects the projects’ strong operating and financial performance, and KBRA’s expectation that the higher-than-forecast toll rate increases in 2022 and 2023 will have a positive impact in the borrower’s financial position.
Outlook
The Positive Outlook on the notes reflects the strong performance of both traffic and revenue in 2023, and DSCRs above 1.7x in 2023. KBRA expects the project to remain on this positive trend during 2024. An upgrade on the ratings could occur if the projects’ financial performance continues to exceed KBRA’s forecast, with long-term average DSCRs above 1.9x. A ratings downgrade could occur if traffic and revenues deteriorate and result in materially lower-than-forecast DSCRs.
To access rating and relevant documents, click here.