Fitch Rates Interoceanica IV Finance Limited (InterSur) ?BB+
Published April 29th, 2007
Fitch has assigned a rating of ‘BB+’ to Interoceanica IV Finance Limited, a Peruvian securitization of government payment obligations in connection with parts of the IIRSA Sur toll road concession. The total aggregate amount of $562,437,825, issued in two zero-coupon series(2007-1 and 2007-2), will be indirectly used to cover the costs of expansion and improvements on Segment Four of IIRSA Sur, a 2,600 kilometer network of existing toll roads connecting port cities in Peru with those in Brazil.
Upon completion, the road is not expected to generate sufficient revenues to cover its construction costs. As compensation, the government of Peru (GOP) will reimburse the concessionaire for construction progress with annual payments in U.S. dollars (Certificados de Reconocimiento de Pago Anual por Obras [CRPAOs]) prorated to the advance of works. This transaction will be a securitization of CRPAOs. CRPAOs delivered from the GOP to the concessionaire will be sold to the issuer.
Cash flow to maintain strict adherence to the fixed payment schedule of the transaction will depend on the GOP’s continued payment on all issued CRPAOs. CRPAOs are backed by the full faith and credit of the GOP. While legally different from public debt, Fitch views the difference in probability of the GOP honoring one obligation over the other as immaterial. The rationale behind the rating of the notes is similar to that of a government pass-through.
CRPAOs are generated on an ongoing basis in conjunction with the advance of construction. While construction progresses, transaction proceeds will be invested in a total return swap (TRS). Monies invested in the TRS will be made available to purchase CRPAOs. Once generated, existing CRPAOs are not subject to any condition or performance obligation relating to the concession agreement.
While noteholders are not exposed to continuing construction risk, material construction delays six months past a payment date would cause a termination under the CRPAO purchase agreement. In this scenario, noteholders’ expected return (and risk profile) will be altered. Noteholders’ collateral would consist of a combination of existing CRPAOs already purchased and all remaining proceeds invested under the TRS. Risks associated with cash flows from the TRS are commensurate with the credit profile of the TRS counterparty and are not correlated to CRPAOs.
For more information on the transaction and detail on Fitch’s credit analysis, see the report ‘Interoceanica IV Finance Limited-InterSur’ available on the Fitch Ratings web site at www.fitchratings.com.
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