The M1 is a critical element within the Sydney orbital road network connecting Sydney's central business district with Sydney Airport, and provides key linkages to the Sydney Harbour Tunnel, Sydney Harbour Bridge and the city's northern and south-eastern suburbs.
Revenue for the year to 30 June 2013 (FY13) was AUD100.5m, up 8.4% over the prior year. The growth was due mainly to an increase of 50 cents in the toll rate for cars and motorcycles to AUD6.00 on 1 July 2012. Traffic was relatively flat, with annual average daily traffic up only 0.1% for the year. The lack of growth in traffic numbers is likely due in part to the toll increase at the beginning of the fiscal year, as well as to the introduction of fully electronic tolling in 2011, which caused some cash users to divert from the road. The M1 may have also been affected by construction on other roads in the Sydney orbital network that connect to it, and from slower economic growth in the overall economy. Traffic is expected to return to a steady growth of 1-2% over the next several years. The volume risk attribute is assessed as "midrange".AMT has continued to raise tolls at the maximum level allowed under the concession agreement, with a CAGR of around 5% since operations commenced. Toll prices are escalated in increments of AUD0.50, which can result in some flattening of demand following each increase. The concession agreement allows toll increases of at least 1% per quarter, which is steep and may impact long term volume growth. Tolls currently stand at AUD6.00 for cars (Class A) and AUD12.00 for other vehicles (Class B). Price risk is assessed as "midrange".
While typical of the Australian market, the bullet debt structure is a weaker attribute compared to other Fitch monitored toll roads globally. However, AMT and its main sponsor Transurban (whose financing arm is Transurban Finance Company Pty Limited ('A-'/Stable)) have proven track records of refinancing debt well in advance of maturity. AMT also benefits from Transurban's strong global banking relationships. Structural features include: medium term interest rate hedging requirements; a higher interest coverage cash lock-up than the last loan package; and a major maintenance letter of credit. Fitch expects that refinancing of the Tranche A debt will be completed by January 2014, six months prior to maturity. The debt structure attribute is assessed as "midrange".
AMT has a demonstrated ability to withstand downside events and maintain its robust historical interest-only coverage ratio (ICR) above 2.0x. Coverages have declined somewhat as the cash flows from infrastructure bonds have run off, but the minimum ICR (calculated assuming no amortisation until 2037) in Fitch's Rating Case is still fairly strong at 1.85. The Rating Case assumes in particular toll rate increases of 4% per year, long term traffic growth of 1% resulting notably from adverse price elasticity, and moderate stresses to operating and maintenance costs and interest costs. The Rating Case concession life coverage ratio (CLCR) of 2.93 and average debt service coverage ration (DSCR), on a notional 25-year amortisation starting in 2014, of 3.13, benefit from the lengthy concession period, and are within the 'A-' rating category.
Assuming lower toll rate increases at 2% per annum would result in CLCR of 2.28 and average DSCR of 2.31. These levels are materially below the Rating Case but still robust. The debt service risk attribute is assessed as "stronger".
The M1's major maintenance requirements are well managed by Transurban, with the costs fully funded by cashflow from operations. Management does not expect to develop M1 above its current capacity of 82,000 vehicles per day, but plan to continue to maximize revenues from the existing traffic to meet debt service. The infrastructure development and renewal attribute is assessed as "stronger".
RATING SENSITIVITIES
AMT's ratings would come under downward pressure from financial deterioration such that leverage was forecast to be still above 6x by 2015, or if the Tranche A refinancing was delayed beyond January 2014.
Revenue for the year to 30 June 2013 (FY13) was AUD100.5m, up 8.4% over the prior year. The growth was due mainly to an increase of 50 cents in the toll rate for cars and motorcycles to AUD6.00 on 1 July 2012. Traffic was relatively flat, with annual average daily traffic up only 0.1% for the year. The lack of growth in traffic numbers is likely due in part to the toll increase at the beginning of the fiscal year, as well as to the introduction of fully electronic tolling in 2011, which caused some cash users to divert from the road. The M1 may have also been affected by construction on other roads in the Sydney orbital network that connect to it, and from slower economic growth in the overall economy. Traffic is expected to return to a steady growth of 1-2% over the next several years. The volume risk attribute is assessed as "midrange".AMT has continued to raise tolls at the maximum level allowed under the concession agreement, with a CAGR of around 5% since operations commenced. Toll prices are escalated in increments of AUD0.50, which can result in some flattening of demand following each increase. The concession agreement allows toll increases of at least 1% per quarter, which is steep and may impact long term volume growth. Tolls currently stand at AUD6.00 for cars (Class A) and AUD12.00 for other vehicles (Class B). Price risk is assessed as "midrange".
While typical of the Australian market, the bullet debt structure is a weaker attribute compared to other Fitch monitored toll roads globally. However, AMT and its main sponsor Transurban (whose financing arm is Transurban Finance Company Pty Limited ('A-'/Stable)) have proven track records of refinancing debt well in advance of maturity. AMT also benefits from Transurban's strong global banking relationships. Structural features include: medium term interest rate hedging requirements; a higher interest coverage cash lock-up than the last loan package; and a major maintenance letter of credit. Fitch expects that refinancing of the Tranche A debt will be completed by January 2014, six months prior to maturity. The debt structure attribute is assessed as "midrange".
AMT has a demonstrated ability to withstand downside events and maintain its robust historical interest-only coverage ratio (ICR) above 2.0x. Coverages have declined somewhat as the cash flows from infrastructure bonds have run off, but the minimum ICR (calculated assuming no amortisation until 2037) in Fitch's Rating Case is still fairly strong at 1.85. The Rating Case assumes in particular toll rate increases of 4% per year, long term traffic growth of 1% resulting notably from adverse price elasticity, and moderate stresses to operating and maintenance costs and interest costs. The Rating Case concession life coverage ratio (CLCR) of 2.93 and average debt service coverage ration (DSCR), on a notional 25-year amortisation starting in 2014, of 3.13, benefit from the lengthy concession period, and are within the 'A-' rating category.
Assuming lower toll rate increases at 2% per annum would result in CLCR of 2.28 and average DSCR of 2.31. These levels are materially below the Rating Case but still robust. The debt service risk attribute is assessed as "stronger".
The M1's major maintenance requirements are well managed by Transurban, with the costs fully funded by cashflow from operations. Management does not expect to develop M1 above its current capacity of 82,000 vehicles per day, but plan to continue to maximize revenues from the existing traffic to meet debt service. The infrastructure development and renewal attribute is assessed as "stronger".
RATING SENSITIVITIES
AMT's ratings would come under downward pressure from financial deterioration such that leverage was forecast to be still above 6x by 2015, or if the Tranche A refinancing was delayed beyond January 2014.
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