Fitch Affirm Metro S.A's Ratings at 'A'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed Empresa de Transporte de Pasajeros Metro S.A.'s (Metro) ratings. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release.

Metro's ratings incorporate support from the Chilean government through the financing of the majority of its capital expenditure plan. The ratings also reflect Metro's stable operating results, capital structure and adequate liquidity.

The Stable Outlook incorporates Fitch's expectation that the Chilean government will continue to support the implementation of the company's investment plan during the next year through the funding of approximately two-thirds of the required investments.

KEY RATING DRIVERS

SUPPORT FROM THE CHILEAN GOVERNMENT INCORPORATED

Fitch views the credit linkage between Metro and the Chilean government as strong. This is reflected in significant legal, financial and strategic ties between the two. Metro is a stock corporation that is indirectly wholly owned by the State of Chile. As of Dec. 31, 2015, CORFO, a 100% government-owned entity, held 62.75%, of Metro's outstanding shares and the Chilean government, through the Ministry of Finance, held the remaining 37.25%. Through these entities, the Chilean government maintains and defines key aspects of Metro's capital structure, board of director's composition, investments plan, and funding strategy.

The Chilean government provides financing to Metro's projects through the public budget, which is prepared by the government and approved by the Chilean congress on an annual basis. The financial ties are reflected in the capital contributions granted to Metro by the Chilean government to finance Metro's investment plan. During the 2011 - 2015 period, the Chilean government - through Metro's two shareholders - completed capital contributions of approximately USD2.0 billion. In addition, the State of Chile guaranteed 36% of the company's total debt (in December 2015).

STRATEGIC TRANSPORTATION PROVIDER WITHIN SANTIAGO AREA

The company's strategic importance in terms of the public transportation system in the Santiago metropolitan area (Transantiago) is viewed as a positive credit factor as it ensures continued financial support from the Chilean government. Metro is the main public transportation system in Santiago and the backbone of Transantiago, accounting for approximately 63% of the system's total trips, and facilitates the integration of other public transportation. Its goal is to provide the population with adequate transport service and maintain high levels of efficiency. With the start-up of lines 6 and 3 in 2017 and 2018, respectively, Metro seeks to expand its operation, reaching a network of 136 stations, 140 Km. of rails, 26 communes, with an expected influx of approximately 800 million trips. As of December 2015, the progress of construction of the line 6 was 66% and line 3, 46%.

EBITDA MARGINS CONSTRAINED BY NEW MANAGEMENT PLAN

In 2014 and 2015 there has been a decreasing trend of EBITDA and EBITDA margin. In 2014, this was mainly due to an increase in energy costs, given the higher exposure to the spot electric market. Meanwhile, in 2015 this reduction in operating performance was due to bigger maintenance and personnel costs, due to implementation of a new management improvement plan for complex or high impact failures, implemented in 2015. The company's revenue, EBITDA and EBITDA margin were USD460 million, USD118 million and 25.8%, respectively, as of Dec. 31, 2015.

This change in management focus should involve a consistent improvement in quality and reliability of Metro's service; however, these adjustments are expected to pressure margins. Fitch expects the company's EBITDA margin to remain in the 25% - 28% levels in the coming periods.

In September of 2015, the company signed a new electric supply contract with Chilectra. This contract, which expires in December 2023, has fixed price and will supply Metro with up to 40% of its electricity requirements. This new fixed price contract diversifies the company's sources of electric power supplies, providing Metro with more flexibility in its cost structure and reducing its exposure to the spot market.

BALANCE BETWEEN CAPEX PLAN AND FUNDING STRATEGY

The company has a USD3.3 billion capital expenditure plan (capex) for the time period between 2012 - 2018. Approximately USD2.8 billion is to be used to increase its service offering and extend its network with lines 3 and 6. The balance is for improvements in existing operations. Funding for these projects will be handled in a similar way to those observed previously - with input from state resources for two-thirds of the total, in addition to company financial debt for the remaining third (USD1.3 billion, including USD500 million of international bonds issued in February 2014).

Metro's financial leverage is high. The company's net leverage measured as the net debt-to-EBITDA ratio was 18.9x in 2015. In this period, the company's total debt was USD2.3 billion, mainly consisting of bank loans (23%) and public debt (77%). The ratings incorporate Fitch's view that Metro's net leverage would be around 18x to 20x during the 2016-2017 period.

KEY ASSUMPTIONS

--Chilean Government covering 66% of the company's total capex plan during 2015 - 2018 period (new lines 3 and 6 and expansions of line 2 and 3).

--Margin EBITDA around 25% - 28% in the medium Term.

--Net Leverage remains 18x - 20x range during the 2016 - 2017 period.

--Coverage ratio remains around 1.3x during the 2016 - 2017 periods.

RATING SENSITIVITIES

Metro's ratings could be affected if there are relevant changes in the financial and/or strategic support granted by the State of Chile, in its role as a controller for Metro. Downgrades to Chile's Sovereign Rating can affect Metro's Rating.

LIQUIDITY

Metro's credit ratings reflect the company's adequate liquidity position. The company's had USD251 million of cash and marketable securities as of Dec. 31, 2015, which compares favourably with USD176 million of short-term debt. The company's good access to credit through the banking sector and capital markets provides additional sources of liquidity. Metro's interest coverage ratio was 1.4x and 1.2x during 2014 and 2015, respectively.

In addition, as of December 2015, the company had USD685 million available for two syndicated bank loans for USD800 million (USD250 million led by Sumitomo Mitsui Banking with 12 year term, and USD550 million led by BNP with 14 years term). Together with the issuance of international bond for USD500 million, Metro completed the external financing required for the project to build line 3 and 6. The company's coverage ratio is expected to remain around 1.3 during the 2016 - 2017 period.

FULL LIST OF RATING ACTIONS

Fitch has affirmed Metro's ratings as follows:

International Ratings:

--Local currency Issuer Default Rating (IDR) at 'A';

--Foreign currency IDR at 'A';

--Senior unsecured bond, USD500 million, due in 2024 at 'A'.

National Ratings:

Issuances without explicit Guarantee of State of Chile:

--Line of Bonds # 515 (Series H and I) due in 2020 and 2029, respectively at 'AA+(cl)';

--Line of Bonds # 619 (Series J) due in 2034 at 'AA+(cl)';

--Line of Bonds # 681(Series K and Series L) due in 2032 and 2033, respectively at 'AA+(cl)'.

Issuances with explicit Guarantee of the State of Chile:

--Bond # 257 (Series A) due in 2026 at 'AAA(cl)';

--Bond # 275 (Series B) due in 2026 at 'AAA(cl)';

--Bond # 297 (Series C) due in 2027 at 'AAA(cl)';

--Bond # 339 (Series D) due in 2028 at 'AAA(cl)';

--Bond # 370 (Series E) due in 2029 at 'AAA(cl)';

--Bond # 371 (Series F) due in 2029 at 'AAA(cl)';

--Bond # 431 (Series G) due in 2030 at 'AAA(cl)'.

In addition, Fitch has affirmed the National Long-Term Rating (Solvency) at 'AA+(cl)'.

The Rating Outlook is Stable.

Additional information is available on www.fitchratings.com

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Rating of Public-Sector Entities - Outside the United States (pub. 22 Feb 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=877128

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1002758

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1002758

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Fitch Ratings
Primary Analyst
Jose Vertiz
Director
+1-212-908-0641
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Francisco Mercadal
Associate Director
+562 2499 3340
or
Committee Chairperson
Sergio Rodriguez, CFA
Senior Director
+52 81 8399 9100
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
Email: [email protected]

Source: Fitch Ratings

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