Fitch Ratings has affirmed the 'BB' rating of the fixed-rate
The Rating Outlook is Stable.
RATING RATIONALE
The rating reflects Prumopar's stable cash flow, derived from distributions from
The notes have fixed rate and include a balloon payment at maturity in 2031. In Fitch's scenarios, the refinancing risk is partially mitigated by cash sweep mechanism that reduces the balloon payment to 4.3% of total debt (
Despite the metrics being commensurate with higher rating categories, the rating is constrained by
KEY RATING DRIVERS
Ferroport has operated since 2014 and benefits from a long-term ToP agreement with
Long Term Take-or-Pay Agreement [Revenue Risk: Price - Stronger]:
The ToP agreement sets forth annual tariffs readjustments that follow two-thirds of
The revenues and debt are
Adequate Infrastructure [
Ferroport's facilities are new, and Fitch expects key equipment to have long useful lives. No replacement requirements are foreseen throughout the life of the transaction. Planned investments comprise predominantly channel dredging, increase of stacking capacity and maintenance works to preserve operational efficiency and environmental compliance.
The ToP establishes the potential for expansion, and Ferroport has the option to agree to expand; if it does, the contract establishes an additional tariff for this incremental volume, calculated in order to assure an Internal Rate of Return (IRR) of 15%. Otherwise, AAMFB has the option to make required the capex itself. However, as per the transaction documents, capex in excess of
Refinance Risk Partially Mitigated by Cash Sweep [Debt Structure - Midrange]:
Rated debt is senior at Prumopar's level but structurally subordinated to Ferroport. Cash flows to service debt will come from the payment of intercompany loans and dividend distributions. Ferroport does not hold financial debt; its capex was funded through intercompany loans from Prumopar and
The rating reflects the clause of the SHA, which may result in the suspension of Prumopar's voting rights at Ferroport if the bankruptcy of any member of Prumopar's shareholder group is not enforceable under Brazilian law, assuring Prumopar's voting power against new indebtedness at the operational company, as per the transaction's documents. This view is supported by a legal opinion on the subject requested by Fitch.
The debt has a fixed interest rate and its legal amortization comprises a balloon payment of up to 55.1% (
Financial Profile
Under Fitch's Base and Rating cases, a balloon payment is due in 2031, indicating a Loan Life Coverage Ratio (LLCR) below 1.0x. Refinancing risk is mitigated by a PLCR, which considers the cash flows available for debt service until the end of ToP agreement, of 4.3x in 2031 in Fitch's Rating Case. Prumopar's Net Debt-to-CFADS peak is 6.2x in 2024, under Fitch's Rating Case, a comfortable level in light of the eight-year ToP tail. Credit metrics are somewhat strong for the rating level, which is constrained by
PEER GROUP
Prumopar's closest peer is
Prumopar presents leverage comparable to
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Operational disruption negatively impacting the cash flows;
A negative rating action on
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Achievement of the target amortization schedule in a sustained basis;
Favorable track record of operations without disruption;
A positive rating action on
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure 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 '
TRANSACTION SUMMARY
Prumopar is a wholly-owned subsidiary of
Ferroport is the owner of an area of 300 hectares in the Acu Port, where iron ore is processed, handled and stored. The facilities include an offshore structure comprising an access bridge, access canal, breakwater and two berths for iron ore loading. Ferroport benefits from a 25-year ToP with AAMFB, until 2039, for 26.6 million wet metric tons per year.
Ferroport was also responsible for the construction of the T1 port terminal and signed a Port Access Agreement with
Ferroport is the last line in the logistics chain and an integral part of Anglo's Minas-Rio iron-ore project, which comprises 5.3 billion tons of mineral resources. The Minas-Rio project is located in the States of
CREDIT UPDATE
Ferroport's adjusted EBITDA of 2021 has increased 7.3%, which has enabled Ferroport to distribute to Prumopar and
FINANCIAL ANALYSIS
The main assumptions of Fitch's Base Case include:
US PPI: 7.0% in 2022, 3.6% in 2023, 2.7% in 2024 and 2.0% from 2025 onwards;
Foreign Exchange Rate (BLR/USD): 5.20 in 2022, 5.20 in 2023, 5.20 in 2024, and depreciation according with the IPCA (Brazilian CPI) and PPI variation from 2025 onwards;
Volume: minimum guarantee throughput of 26.6 million tons per year;
Tariffs: adjusted according ToP agreement (67% of US PPI);
Operational and Capital expenses: 5% higher than sponsor's case;
Transshipment volume: 70 services per year.
The same assumptions were used in the rating scenario, with the exception of:
Operational and Capital expenses: 10% higher than sponsor's case;
Transshipment volume: 63 services per year.
In Fitch's Base Case, minimum PLCR is 1.6x, considering the ToP tenor. Maximum leverage (net debt/CFADS) is 5.8x in 2024. In 2031, the PLCR is 5.6x and the debt is fully amortized considering the target schedule. In Fitch's Rating Case, minimum PLCR is 1.6x, also considering the ToP tenor. Maximum leverage (net debt/CFADS) is 6.2x in 2024. In 2031, the PLCR is 4.3x and the debt's balloon is 4.3%.
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
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
(C) 2022 Electronic News Publishing, source