Moody's also maintained its rating on senior secured debt at Baa1 and its provisional rating for the programme to issue €3 billion in medium-term bonds for the concession company.
Moody’s upgraded Brisa’s outlook from stable to positive on Tuesday following the upgrade of Portugal’s rating outlook announced on Friday and the road concessionaire’s “improved operational performance”.
In addition to improving Brisa’s outlook, Moody’s maintained its rating on the company’s senior secured debt at Baa1 and its provisional rating for the programme to issue €3 billion in medium-term bonds for the concession company.
The rating agency said that today’s rating action reflects the fact that “BCR’s [Brisa Concessão Rodoviária] ratings are constrained by the government of Portugal’s rating (Baa2 with a positive outlook)”, with Brisa “unlikely to be rated more than one notch above the government’s rating, given its exclusively domestic focus”.
“Consequently, an upgrade of the government’s rating would likely result in an upgrade of BCR’s rating, provided that BCR’s current financial profile is maintained,” it adds.
In addition, it said, the change in outlook for BCR’s rating “also reflects the company’s improved operating performance in 2022, as evidenced by a strong recovery in traffic volumes and revenues following the impact of the coronavirus crisis”.
In today’s note, Moody’s considers that “Portugal’s robust medium-term growth prospects will support continued traffic growth on Brisa’s motorway network”.
“At the same time, BCR’s revenues should benefit from relatively high inflation, given the indexation mechanism incorporated in the formulation of toll rates, the recently implemented government support and the well-established regulatory framework,” it said, considering that this will “support BCR’s continued deleveraging in the coming years”.
According to the rating agency, the change of Brisa’s outlook to positive “also reflects Moody’s expectation that the company will maintain its funding structure, continue to present credit metrics consistent with the terms of its debt and maintain a strong liquidity position”.
In 2022, traffic on Brisa’s network increased by more than 15%, reaching pre-pandemic levels.
Moody’s notes that “this higher traffic volume, coupled with moderate toll increases and a €131 million reduction in nominal net debt, led to a significant reduction in BCR’s financial leverage, with [the] net debt/EBITDA ratio falling to 2.7x at year-end 2022 (vs. 3.5x at year-end 2021), considerably below the 4.75x threshold at which dividends to shareholders are prohibited.”
In this context, the rating agency says it expects Brisa to “balance creditor and shareholder needs and continue to maintain an adequate margin against existing limits, which will become more demanding over time”.
“Overall, BCR’s rating is underpinned by the large size and importance of its network to the Portuguese transport system; the support of the concession and regulatory framework; the company’s limited capital investment programme, which supports ‘cash flow’ generation; the package of covenants and other protections built into its debt documentation; and the track record of prudent financial management,” it summarises.
Still, Moody’s warned that “BCR’s credit profile remains constrained by the company’s refinancing needs, although mitigated by its prudent pre-financing strategy; the reduced awareness of the magnitude and strategy of dividend distribution beyond the short term, which drives leverage levels; and the credit quality of the government of Portugal.”