Tesla News – Fitch Assigns Cliffton’s Proposed USD Notes an Expected Rating of ‘BB(EXP)’/Negative
(The following statement was released by the rating agency) Fitch Ratings-Singapore-08 March 2021: Fitch Ratings has assigned Cliffton Limited’s proposed US-dollar senior secured notes an expected rating of ‘BB(EXP)’ with a Negative Outlook. The rating reflects consolidated credit profile of Delhi International Airport Limited (DIAL, BB/Negative). The final rating is contingent upon the receipt of final documents conforming to the information already received. RATING RATIONALE The proceeds from the proposed notes will be used to subscribe to green Indian rupee non-convertible debentures (NCD) to be issued by DIAL. Cliffton is an orphan financing vehicle incorporated in Mauritius with no direct linkages to DIAL. The green NCDs will be senior ranking in line with other bonds issued by DIAL. We therefore rate the proposed US-dollar notes at the same level as DIAL’s Issuer Default Rating (IDR). DIAL will use the majority of the net proceeds to refinance its existing bonds and the balance towards capex investment in eligible green assets. The proposed US-dollar note holders will benefit from a charge over the offshore accounts of Cliffton and a pledge of 100% shareholding in the orphan SPV. The NCDs, in turn, will be secured by a first charge over all of DIAL’s rights, titles, permits, approvals and interests related to its project agreements, receivables and cash flows. DIAL has a solid market position as the developer and operator of India’s largest airport, with most of the airport’s traffic being origin and destination. The Negative Outlook on the IDR reflects the low likelihood of near-term deleveraging, given DIAL’s committed capex and slow volume recovery due to the re-imposition of travel restrictions following an increase in coronavirus infection rates. KEY RATING DRIVERS Risk Assessment: Fitch assesses DIAL’s revenue risk (volume) as ‘Stronger’, price risk as ‘Midrange’, infrastructure development and renewal as ‘Midrange’ and debt structure as ‘Midrange’. For more information, see the last full review published on 18 January 2021 at www.fitchratings.com/site/pr/10149365 PEER GROUP GMR Hyderabad International Airport Limited (GHIAL, BB+/Negative) is DIAL’s closest peer. Both airports benefit from India’s fast-expanding air passenger market. DIAL has a larger catchment area than GHIAL, which serves Hyderabad, a vibrant but smaller city than Delhi. We expect GHIAL’s recovery to be faster, as most of its traffic is domestic. DIAL and GHIAL operate under the same economic regulatory framework. GHIAL has some pending disputes with regulators regarding tariff determination, while DIAL has implemented base airport charges, which effectively removes downside risk to aeronautical tariffs. We assess price risk at ‘Midrange’ for both airports. Both airports are undertaking large debt-funded expansion. We assess GHIAL’s debt structure as ‘Weaker’ as the debt has limited credit protection and is exposed to refinance risk. DIAL’s refinance risk is mitigated by a laddered maturity. We forecast DIAL’s leverage to average at 9.9x over the financial year ending March 2022 (FY22)-FY25, compared with 8.8x for GHIAL. DIAL’s higher leverage is partly offset by its larger catchment area and more favourable volume risk assessment RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: We do not expect positive rating action in the near term. We could revise the Outlook to Stable upon a sustained recovery in DIAL’s traffic and revenue due to the easing of the pandemic, especially with the roll-out of effective vaccines, or if DIAL adopts strategies that convincingly stabilise its finances. Factors that could, individually or collectively, lead to negative rating action/downgrade: An extended period of significant traffic decline that presents further challenges to the airport or higher capex than we estimate that results in net debt/EBTIDA being consistently above 10x. Further credit erosion of the major air carriers, payment delinquencies or a sustained deterioration in the airport’s liquidity and a failure to fully refinance its USD288.8 million notes due in February 2022 well in advance of the scheduled maturity. 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 ‘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 [https://www.fitchratings.com/site/re/10111579]. TRANSACTION SUMMARY The issuance structure is commonly adopted in several Fitch-rated transactions in India; the proposed US-dollar note holders will have indirect access to the Indian-rupee NCD security package through the issuer. This will not place Clifton’s noteholders at a disadvantage to DIAL’s US-dollar noteholders, hence there are no credit implications. Cliffton will not undertake any business activity other than investing in the Indian-rupee NCD via the issuance of its proposed US-dollar notes. It will not declare any dividends or incur any further debt, except where all or part of the proceeds are used to refinance this series of notes. Cliffton’s currency exposure from its proposed US-dollar note is reduced by a combination of coupon swaps and a call spread for the principal, along with redemption premium to be paid by DIAL on its NCD obligations. However, there is residual currency-risk exposure for USD notes on the redemption date if rupee depreciates beyond what can be managed by the hedge and redemption premium. A default of the underlying NCDs would trigger an event of default on the proposed offshore US-dollar bonds. The trustee would then enforce on the SPV a share pledge and take control over the SPV. This would also lead to enforcement of the onshore collateral that is pledged by DIAL in favour of the NCD holders. Noteholders of the Indian-rupee NCDs benefit from an escrow account for the NCDs, which has a cash waterfall mechanism in place. Any additional debt is permissible only if there is no default and the fixed-charge coverage ratio is above 2.25x. The terms of the proposed Indian-rupee NCDs include a restriction on permitted additional debt of USD100 million and restrictions on payments and other permitted investments. Restricted payments cannot exceed more than 50% of the accrued aggregate amount of consolidated net income. The successful tender of the refinance of the bonds maturing in 2022 will result in mitigating the near-term refinance risks and lengthening the debt maturity profile for DIAL which is viewed as a credit positive. However, DIAL may face near-term refinance uncertainty should it fail to meet all the requirements in consenting and tendering process. In both scenarios, Fitch expects DIAL’s leverage to trend around 14.0x over FY 2023, before improving to 10.7x thereafter. The green bond certification from the Centre for International Climate and Environmental Research, Oslo (CICERO) for DIAL’s Indian rupee NCDs are ‘CICERO Light Green’ to reflect the estimated 15% improvement in energy efficiency in DIAL’s terminal expansion plans and the initiatives undertaken to reduce aircraft emissions. FINANCIAL ANALYSIS Our rating-case scenario assumes a 65% decline in passenger traffic in FY21. We assume traffic in FY24 to recover to the FY20 level. We have factored in the waiver of annual fee payments to Airport Authority of India (AAI) from 4QFY21 till FYE22. Revenue of INR3.6 billion from a commercial property jointly developed with Bharti Realty Limited at the airport is included from FY22, following delays in approval from AAI. We forecast average leverage of 9.9x from FY22 to FY25 under this rating case. The pandemic sensitivity case assumes the trough of the crisis lingers for one more year, resulting in air traffic recovery to pre-pandemic levels by FY25. No waiver in the annual fee payment to AAI is factored in. All other assumptions are the same as the rating case. We forecast average leverage of 15.3x from FY22 to FY25 under this case. Date of Relevant Committee 03 March 2021 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 Cliffton Limited —-Cliffton Limited/senior secured/1 LT; Long Term Rating; Expected Rating; BB(EXP); Rating Outlook Negative Contacts: Primary Rating Analyst Harini Ravishankar, Senior Analyst +65 6796 7220 Fitch Ratings Singapore Pte Ltd. 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Tesla News – Fitch Assigns Cliffton’s Proposed USD Notes an Expected Rating of ‘BB(EXP)’/Negative
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