In conjunction with these rating actions, Fitch has affirmed ALL’s long-term national scale rating of ‘A-(bra)’. The Rating Outlook for all the ratings is Stable.
ALL’s ratings reflect the group’s strong and growing operational cash flow, its balanced financial profile, its position as the sole provider of railway transportation services for its major customers in southern Brazil, the potential for growth in this region, and limited competitive threats.
The ratings also incorporate risks associated with large investment requirements to meet the growing demand from the region’s agricultural sector. The ratings also reflect limited restrictions on cash distributions from ALL’s operating subsidiaries, as well as the guarantees provided by ALL’s Brazilian operating subsidiaries, America Latina Logistica do Brasil S.A. (ALL Brasil) and America Latina Logistica Intermodal S.A. (ALL Intermodal), for ALL’s debt obligations, which limits structural subordination issues.
The company’s second debenture issuance does not benefit from such a guarantee and thus is rated one notch lower than the other issuances.
Financial results are solid and improving. Despite the challenges in 2004 of reduced soybean cargo volumes due mainly to crop failures and lower demand from China, ALL was able to implement higher average tariffs, increase transportation volumes of other agricultural products, and achieve significant operational improvements.
As a result, operating EBITDAR, defined as operating EBITDA plus the company’s concession and lease payments, increased to 401 million reais in 2004 from 285 million reais in 2003; ALL’s EBITDAR margin grew to 42.3% from 30.0% in 2003.
In 2004, operating EBITDAR covered fixed expenses, defined as interest expense plus concession and lease payments, by 2.4 times (x) a marked improvement from 1.4x in 2003 and much higher than the average of the prior four years of about 1.2x.
The combination of additional improvements in operational efficiencies and higher cargo volumes expected in 2005 (of approximately 30 million tons) should allow ALL to generate operating EBITDAR of about 500 million reais. As of March 2005, operating EBITDAR reached 73.3 million reais and was stable compared with the same period of 2004.
ALL’s debt profile is manageable. As of Dec. 31, 2004, ALL’s consolidated debt totaled 1.2 billion reais, including Fitch’s estimate of 299 million reaus for the capitalization of future lease and concession payments. The debt structure improved over the period with short-term debt representing 11% of the total debt compared with 22% in 2003.
In 2004, the company’s ratio of total debt to operating EBITDAR was 3.1x, an improvement from 2003 of 3.8x. Total debt is expected to increase somewhat during 2005 due to long-term lease-like contractual obligations with All’s customers; the company will indirectly pay back the amount invested by its customers via reduced tariffs for the associated cargo transported.
The coverage ratio of total debt/operating EBITDAR should decline since the operating EBITDAR is expected to grow as new investments are added and cargo volumes increase. ALL maintains a strong liquidity position with a cash and marketable securities balance of BRL645 million as of March 31, 2005, which can also support other investments and short-term debt obligations.
ALL benefits from the expected continued demand from major customers such as soybean producer Bunge Alimentos S.A. (Bunge) and their ability and willingness to enter into long-term contracts.
Under these long term arrangements, ALL’s customers provide the capital for investments in railcars to support their increased transportation needs. Such customers use ALL as their primary means of transportation as alternative transport by truck is higher cost and often less efficient.
ALL is a holding company that directly controls the Brazilian subsidiaries ALL – America Latina Logistica do Brasil S.A. (ALL Brasil) and ALL – America Latina Logistica Intermodal S.A. (ALL Intermodal), and indirectly controls the Argentine subsidiaries ALL – America Latina Logistica Central S.A. (ALL Central), and ALL – America Latina Logistica Mesopotamica S.A. (ALL Meso).
ALL’s network of 16,400 kilometers of railway lines provides freight transportation of primarily soybeans, as well as other agriculture and industrial products in the southern region of Brazil and the central region of Argentina. The railway provides key transportation links with the region’s main ports.
Fitch – www.fitchratings.com