(The following statement was released by the rating agency) Fitch Ratings-Sydney-April 03: Fitch Ratings has revised the Outlook on the debt of Transurban Finance Company Pty Limited and AMT Management Limited to Negative from Stable and affirmed the ratings at 'A-'. RATING RATIONALE Transurban Finance Company Pty Limited Fitch has affirmed Transurban's ratings at 'A-' and revised its Outlook from Stable to Negative to reflect a weaker near-term revenue environment caused by the coronavirus crisis and the potential for material financial degradation. The pandemic represents a significant challenge to both the global economy and to the toll-road sector, leading Fitch to review all transport infrastructure issuers globally. We think the traffic and revenue declines caused by government containment measures in Australia are less severe than in the North American market, although considerable uncertainty remains as to the extent and duration of the crisis. Large-vehicle traffic, which ordinarily makes up around 20% of total traffic on its CityLink toll road, has been more resilient to the shutdown than light vehicles across the portfolio. However, we anticipate commercial traffic will respond more acutely in an economic downturn. Most of Transurban's operating toll roads have asset-level debt, which is non-recourse to the parent company. The potential for a material deterioration in credit metrics on many projects increases the risk that corporate cash flows will be constrained, if assets are locked up under their debt covenants. Under the revised rating case, which incorporates our current assessment of the coronavirus traffic impact, five-year average net debt/adjusted EBITDA is modelled to be slightly in excess of 4.5x. The revised rating case includes forecast traffic declines of 4%, 35%, 25% and 5% in 1Q20, 2Q20, 3Q20 and 4Q20, respectively, or an annualised loss of 17% for 2020, with a recovery to 2019 levels in 2021. Fitch has specified that an increase in the five-year average net debt/adjusted EBITDA above 4.5x for an extended period could lead to a rating downgrade. However, we think the issuer is well-positioned to meet its debt service and other expenditure obligations even though the near-term financial profile has weakened because its liquidity position is strong. AMT Management Limited Fitch has affirmed the Eastern Distributor's ratings at 'A-' and revised its Outlook from Stable to Negative to reflect the weaker near-term revenue environment caused by the coronavirus and the potential for material financial degradation. We see an increased likelihood under the revised rating case that net debt to EBITDA will exceed 3.5x by 2022. Fitch has specified that a higher-than-expected leverage profile with the ratio of net debt to EBITDA projected to be above 3.5x by 2022 could lead to a negative rating action. The absence of a dedicated debt-service reserve account for AMT Management is a weakness, however, debt-service coverage ratio cushions or the possibility of drawing on unrestricted cash should support liquidity in 2020. The company has a record of refinancing debt well in advance of maturity, reducing refinancing risk associated with a AUD300 million medium-term note bullet due in December 2020. KEY RATING DRIVERS No key rating drivers were changed as part of this review. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Positive rating action is not expected in the near future given substantial uncertainty over the coronavirus crisis with knock-on effects on economic growth, traffic and revenues; - Transurban's Outlook may return to Stable if five-year average net debt/adjusted EBITDA under Fitch's rating case is sustained below 4.5x; - Eastern Distributor's Outlook may return to Stable if net debt/adjusted EBITDA under Fitch's rating case is forecast below 3.5x by 2022; Factors that could, individually or collectively, lead to negative rating action/downgrade: - Material degradation of traffic and revenue expectations should the coronavirus crisis result in anticipated long-term economic impairment; - Sustained deterioration of liquidity levels. Best/Worst Case Rating Scenario International scale credit ratings of Public Finance issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579. CREDIT UPDATE The coronavirus pandemic represents a significant challenge to both the global economy and the toll-road sector. State and federal governments across Australia and other countries have been issuing orders for residents to self-quarantine for all but essential travel in an effort to slow the spread of the virus. These efforts to slow the spread of coronavirus have had the unintended consequence of slowing the economy and have resulted in severe traffic declines well in excess of peak losses during the global financial crisis. Fitch understands that recent Australian monthly traffic and revenue declines are between 30% and 40% yoy. Truck traffic has fared much better to date, generally falling less than 5%. However, truck traffic is declining steadily, which may worsen significantly if discretionary goods production is halted or supply chains become increasingly dysfunctional. Both light- and heavy-vehicle traffic is likely to decline further as the severity and scope of quarantines and social distancing weigh down the economy and suppress all but essential traffic. FINANCIAL ANALYSIS FITCH CASES Fitch assumed near-term traffic losses based on the most recent actual declines experienced on toll roads in Australia. These parameters translated into rating-case forecast traffic declines of 4%, 35%, 25% and 5% in 1Q20, 2Q20, 3Q20 and 4Q20, respectively, or an annualised loss of 17% for 2020. Traffic and revenues are assumed to recover to 2019 levels by 2021 and increase by prior rating-case levels thereafter. Variable rate operating and maintenance (OM) cost is assumed to fluctuate with traffic levels for the first two years and revert to prior rating-case assumptions in 2022 and beyond. Fitch also ran a sensitivity case with steeper traffic declines of 4%, 50%, 40% and 10% in 1Q20, 2Q20, 3Q20 and 4Q20, respectively, or an annualised loss of 26% for 2020. Revenues and traffic are assumed to recover to 2019 levels by 2021 minus 5% and rise by prior rating case levels thereafter. Variable rate OM cost is assumed to fluctuate with traffic levels for the first two years and revert to prior rating case assumptions in 2022 and beyond. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ESG Considerations ESG issues are credit neutral or have only a minimal credit impact on the entity(ies), either due to their nature or the way in which they are being managed by the entity(ies). For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg. Transurban Finance Company Pty Limited ----Transurban Finance Company Pty Limited/Debt/1 LT; Long Term Rating; Affirmed; A-; RO:Neg AMT Management Limited ----AMT Management Limited/Debt/1 LT; Long Term Rating; Affirmed; A-; RO:Neg Contacts: Primary Rating Analyst James Hodges, Associate Director +61 2 8256 0377 Fitch Australia Pty Ltd Level 15 77 King Street Sydney NSW 2000 Secondary Rating Analyst David Cook, Director +61 2 8256 0363 Committee Chairperson Sajal Kishore, Senior Director +65 6796 7095
Media Relations: Peter Hoflich, Singapore, Tel: +65 6796 7229, Email: peter.hoflich@thefitchgroup.com; Leslie Tan, Singapore, Tel: +65 6796 7234, Email: leslie.tan@thefitchgroup.com. Additional information is available on www.fitchratings.com Applicable Criteria Infrastructure and Project Finance Rating Criteria (pub. 24 Mar 2020) (including rating assumption sensitivity) https://www.fitchratings.com/site/re/10114533 Toll Roads, Bridges and Tunnels Rating Criteria (pub. 24 Mar 2020) (including rating assumption sensitivity) https://www.fitchratings.com/site/re/10114695 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/site/dodd-frank-disclosure/10116855 Solicitation Status https://www.fitchratings.com/site/pr/10116855#solicitation Endorsement Status https://www.fitchratings.com/site/pr/10116855#endorsement_status Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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