LatAm toll roads feel cash flow pinch

LatAm toll roads feel cash flow pinch

Debt Capital Markets Project & Infrastructure Finance Coronavirus Latin America Colombia Mexico

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Several toll road concessionaires in Latin America have suffered a sharp decline in revenues as a result of travel and trade restrictions during the coronavirus pandemic, but they may receive help from governments before the end of the year.

"Neither the government nor anyone else thought you could have a whole year with very low traffic, very low macroeconomic environment and exchange rate drops versus the dollar," said a banker in New York.

In Colombia, where tolls for freight vehicles were waived until May 31 to guarantee the continued supply of goods, the government is expected to reimburse toll road operators for lost revenues in July, but it is not expected to provide additional compensation for the decline in revenues beyond the availability payments already outlined in the concession contracts, the banker said.

"In many places in Colombia, the traffic decreased 10% to 20% from previous numbers. The top-up payments, or diferencias de recaudo, occur in years eight, 19 and 20 of the concessions. This means for the 4G projects, most of which were awarded between 2014 and 2016, the top-up payments will arrive between next year and 2023," he said.

In the meantime, concessionaires face downgrades as the drop in revenues forces them to dip into their cash reserves. Fitch Ratings downgraded Ruta al Mar to BB+ from BBB- and put a negative outlook on the BBB- rating for Pacífico 3 in April.

Ruta al Mar, which was financed with bonds and loans in late 2017, dropped below investment grade with low traffic levels, a slower pace of construction due to worker restrictions and financial troubles at the holding company all to blame.

"They are in a tight spot. I don't think their debt can be easily refinanced in the market today, and the bonds have very high make-whole premiums," the banker said.

In other countries, how toll road concessions come through the coronavirus pandemic depends on how each project is structured and how strong their debt service coverage ratios are, the source said.

Fitch expects traffic to return to 2019's levels in 2021 in most countries in Latin America but not before 2023 in Mexico. As a result, the rating agency downgraded Concesionaria Mexiquense to BBB from BBB+ and put a negative outlook on Red de Carreteras de Occidente (RCO). In Panama, it cut ENA Este to BB- from BB and ENA Norte Trust to BB+ from BBB-.

Looking ahead, future toll road concessions may not base their financing plans so much on traffic risk and use more upfront equity contributions and letter of credit guarantees to fund the projects, the banker said.