Fitch Affirms AMT Management at 'A-'; Outlook Stable

(The following statement was released by the rating agency)SYDNEY/LONDON, July 08 (Fitch) Fitch Ratings has affirmed AMT Management Limited's (AMT) senior secured debt facilities as follows:AUD300m Tranche A medium term notes due November 2020: affirmed at 'A-'; Outlook StableAUD225m Tranche B loan due July 2018: affirmed at 'A-'; Outlook StableThe ratings and Stable Outlooks reflect the importance of the Eastern Distributor (ED) as a critical element within the Sydney orbital road network, and the expected ability of the project to service debt comfortably even in conservative downside scenarios. KEY RATING DRIVERSSolid Revenue and Traffic GrowthThe ED is a mature asset whose traffic growth rates have been trending down from a historical average of 3% to around 2% over the past five years. The slowing rate of traffic growth is a result of congestion at peak travel times and the profile of historical toll increases. Toll revenue for the nine months to March 2015 was AUD84m, up 6.6% from the prior corresponding period. The higher revenue was due to index-based toll increases along with 1.9% growth in average daily traffic, which was down slightly from the year ending June 2014 (2.3% growth). However, 1Q15 saw higher growth of 3.0%, which is likely due to the December 2014 completion of the expansion works on the M5 motorway, which links in to the ED. Steady economic growth is continuing at between 2% and 3%, which should support modest traffic growth. In Fitch's base case, traffic growth is expected to continue at around 2% per year in the medium term. We assess the volume risk attribute as Midrange.Toll Growth Remains RobustAMT has continued to raise tolls at the maximum allowed under the concession agreement, with a CAGR of over 5% since operations commenced. Previously, toll prices were escalated in increments of AUD0.50. This introduced some volatility in traffic growth, which tended to flatten after each increase. However, in November 2013, tolling moved to quarterly increases (facilitated by fully-electronic tolling), eliminating this volatility. Tolls currently stand at AUD6.55 for cars and AUD13.10 for other vehicles, and are charged only in the northbound direction. We assess price risk as Midrange.Debt Structure Risk Well-ManagedWhile typical of the Australian market, the bullet debt structure is a weaker attribute compared with other toll-roads globally that Fitch monitors. However, AMT and its main sponsor, Transurban, have proven track records of refinancing debt well in advance of maturity. The AUD295m of bank debt due to mature in July 2014 was refinanced more than six months in advance with a capital markets issue, extending the tenor to seven years from three years, broadening the lender base and lowering the cost of borrowing.AMT benefits from Transurban's global banking relationships and capital markets experience. There is no interest-rate risk on the current debt tranches, as they are fully hedged (or fixed-rate) to maturity. This leaves AMT exposed to interest rate risk upon refinancing, although financial model sensitivities show comfortable results. Fitch assesses the debt structure risk attribute as Midrange.Sufficient Infrastructure Renewal AMT has continued to invest in ongoing maintenance and asset upgrades during the past year. These are part of an ongoing programme which will be fully funded from operating cash flow. AMT derives substantial benefit from leveraging Transurban's contractor relationships and purchasing economies of scale. AMT is required to maintain a letter of credit as a reserve for the benefit of the lenders for the next 12 months of major maintenance expenditure, but does not expect to use it. Current traffic is around 55,000 vehicles per day compared with a design level of 77,000, which is not expected to be reached until near the end of the concession. The infrastructure development and renewal attribute is assessed as Stronger.Robust Debt Service AMT's financial metrics are strong in Fitch's rating case, with minimum concession life cover ratio (CLCR) of 3.1x and average debt service cover ratio (DSCR) of 2.0x. Three-year net debt/EBITDA leverage in this scenario is forecast to be around 5.5x. The rating case assumes, in particular, toll rate increase of 3% per year, medium-term traffic growth of 1% due to adverse price elasticity, and moderate stress to operating and maintenance costs and interest rates. AMT benefits in particular from a long concession life (2048) allowing debt amortisation to be spread over a long period. The DSCR assumes amortisation of the debt between 2019 and 2031, still leaving a substantial tail of 17 years. AMT's financial metrics are also at comfortable levels when further stresses are applied to simulate traffic shocks and combined downside situations.Peer AnalysisAMT's closest Fitch rated peer is the M7 road in Sydney (WSO Finance: BBB+/Stable), which has comparable leverage to AMT. Compared with Fitch's broader portfolio of toll road ratings, the ED is one of the shortest and hence most concentrated stretches of road, particularly compared with the large European road networks. Nonetheless, this is mitigated by the important service provided by the ED and the relatively stable economic environment in Sydney. RATING SENSITIVITIESAMT's ratings would come under pressure from significant financial deterioration, for example due to a major traffic shock or combined stress, so that leverage was forecast to remain above 6x by June 2017 or CLCR declined below 2.75x.SUMMARY OF CREDITAMT is the borrowing entity for the Airport Motorway Group (AMG), which holds the 48-year concession to operate the 6 km, ED motorway in Sydney. ED links Sydney's Central Business District, the Sydney Harbour Tunnel, and Sydney Harbour Bridge with the city's southern suburbs and Sydney Airport. The main plaza opened in December 1999 and traffic is now well established over 15 years of operating history.Contact: Primary AnalystDavid CookDirector+61 2 8256 0363Fitch Australia Pty Ltd, Level 15, 77 King Street, Sydney NSW 2000Secondary AnalystDanilo QuattromaniDirector+39 02 87 90 87 275Committee ChairpersonOlivier DelfourManaging Director+331 4429 9121Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com.Additional information is available on www.fitchratings.comApplicable Criteria Rating Criteria for Infrastructure and Project Finance (pub. 12 Jul 2012)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867Rating Criteria for Toll Roads, Bridges and Tunnels (pub. 20 Aug 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=758708Additional Disclosures Dodd-Frank Rating Information Disclosure Form /a Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987596Endorsement Policy /a br /br ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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