ACI Airport Sudamerica Downgraded To 'BB' From 'BBB' On Sharp Drop In Traffic Amid COVID-19, Placed On Watch Neg

  • The rapid spread of the coronavirus across the globe and intense border control measures worldwide have triggered an unprecedented drop in passenger traffic at Punta Carrasco Airport. We now forecast a 30% decline in passenger volume due to the temporary suspension of international and domestic flights, along with a 40% reduction in duty-free sales for 2020. As a result, financial metrics will be sharply weaker than expected, with minimum and average debt service coverage ratio (DSCR) of around 1.10x and 1.60x, respectively, in 2020.
  • On March 27, 2020, S&P Global Ratings lowered its debt rating on ACI Airport Sudamerica S.A.'s $200 million notes to 'BB' from 'BBB' and placed it on CreditWatch with negative implications.
  • The negative CreditWatch listing reflects the likelihood of a further downgrade in the next three months in case of a deeper-than-expected decline in ACI's financial performance, leading to a minimum DSCR below 1.05x. Moreover, we could lower the rating if we expect the company to use its debt service reserve account (DSRA) during 2020.
SAO PAULO (S&P Global Ratings) March 27, 2020—S&P Global Ratings took rating actions described above. The downgrade of ACI reflects our expectations of a significant decline in revenue during the first half of the year due to a 40%-50% plunge in traffic and 40% in duty-free sales, which will erode financial metrics. Our new expectations are based on the measures the Uruguayan government and airlines have taken so far in order to prevent the virus from spreading further. Although there's uncertainty regarding the duration of the suspension of flights, which makes it difficult to forecast the total impact on the project's financial metrics for 2020 and the subsequent years, we now expect minimum and average DSCRs of 1.10x in 2020 and 1.60x, respectively, versus the previous forecast of 1.40x and 2.65x, respectively.
ACI's principal and interest payments on its $200 million notes amortize on a semi-annual basis: May 29 and November 29 of each year. As of this report's date, the project has $17 million in cash available to pay the next debt service on its notes due May and on the notes of Puerta del Sur (the asset) due April, which total about $14 million. We believe the CFADS for 2020, together with the remaining cash of $3 million, will be sufficient to pay the amortization payments in October and November.

However, we could lower the rating if traffic performance were significantly weaker than expected during 2020, with an annual traffic drop higher than 35%, leading to DSCR metrics below 1x under our base case scenario in which case we will need to use the six-month DSRA to cover the following debt service.
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