(The following statement was released by the rating agency) Fitch Ratings-Sydney-April 03: Fitch has affirmed the 'A-' rating on the senior secured debt issued by WSO Finance Pty Limited, the financing vehicle for the Westlink M7 motorway in Australia. The Outlook is Stable. WSO Finance Pty Limited ----WSO Finance Pty Limited/Debt/1 LT; Long Term Rating; Affirmed; A-; RO:Sta RATING RATIONALE The affirmation reflects our expectation that current and projected leverage metrics will remain within the 'A' category rating range, despite the weaker near-term revenue environment caused by the coronavirus pandemic. Fitch's revised rating case forecasts peak leverage of about 5.9x net debt/EBITDA in the financial year ending June 2020 (FY20), with a five-year average net debt/EBITDA of 5.4x. The absence of a dedicated debt-service reserve account for WSO Finance Pty Limited is a weakness; however, the possibility of drawing on unrestricted cash should support liquidity in 2020. Traffic has historically exhibited low volatility and strong growth, and we assess volume risk as a 'Stronger' attribute. The bullet debt structure entails refinancing risk, although this is mitigated by proactive debt management and well-established access to banks and capital markets. 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 because of substantial uncertainty in relation to the pandemic-related knock-on effects on economic growth, traffic and revenue. Factors that could, individually or collectively, lead to negative rating action/upgrade: - Material deterioration in our traffic and revenue expectations should the coronavirus crisis result in long-term economic impairment; - Deterioration of liquidity levels for a sustained period. Best/Worst Case Rating Scenario 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 www.fitchratings.com/site/re/10111579. CREDIT UPDATE The coronavirus pandemic is a significant challenge to both the global economy and to the toll-road sector. Governments at state and federal levels in Australia and in 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 have slowed economies and caused severe traffic declines well in excess of peak losses in the global financial crisis, which was itself outsized in its severity. Fitch understands that recent yoy traffic and revenue declines in Australia range between 30% and 40%. Truck traffic has fared much better so far, generally down less than 5%. However, truck traffic shows signs of steady deterioration and may fall significantly further if discretionary goods production is halted or supply chains become increasingly dysfunctional. Both light and heavy vehicle traffic will decline further as the severity and scope of quarantines and social distancing weighs on the economy and suppresses 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 a rating case forecast of traffic declines of 4% in 1Q20, 35% in 2Q20, 25% in 3Q20 and 5% in 4Q20, or an annualised loss of 17% for 2020. Traffic and revenue are assumed to recover to 2019 levels by 2021 and increase by prior rating case levels thereafter. Variable rate operating and maintenance costs (OM) 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% in 1Q20, 50% in 2Q20, 40% in 3Q30 and 10% in 4Q20, or an annualised loss of 26% for 2020. Revenue and traffic are assumed to recover to 2019 levels by 2021 minus 5% and increase by prior rating case levels thereafter. Variable rate OM is assumed to fluctuate with traffic levels for the first two years and revert to the 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. 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 Applicable Model Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s). Third-party Model 24 March 2020-https://www.fitchratings.com/site/re/969858 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/site/dodd-frank-disclosure/10117085 Solicitation Status https://www.fitchratings.com/site/pr/10117085#solicitation Endorsement Status https://www.fitchratings.com/site/pr/10117085#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. IN ADDITION, THE FOLLOWING https://www.fitchratings.com/site/dam/jcr:6b03c4cd-611d-47ec-b8f1-183c01b51b08/R ating%20Definitions%20-%203%20May%202019%20v3%206-11-19.pdf DETAILS FITCH'S RATING DEFINITIONS FOR EACH RATING SCALE AND RATING CATEGORIES, INCLUDING DEFINITIONS RELATING TO DEFAULT. 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