Moody's cuts ratings of Cavite toll road operator

MANILA, Philippines - New York-based Moody’s Investors Service has downgraded the senior debt rating of Manila Cavite Toll Road Finance Co. (MCTR) due to the lower-than-expected traffic volume on the toll roads it operates connecting Metro Manila and the province of Cavite.

Moody’s vice president and senior analyst Annalisa Di Chiara said in a statement that the rating agency has downgraded the B2 senior debt rating of MCTR to Caa1 with a negative outlook on the back of lower-than-expected traffic volume evident on the R1-Extension and the existing R1 road of the Manila-Cavite Expressway or the Coastal Road.

“The ratings downgrade reflects Moody’s concern that a substantial increase in traffic volume over the next six to 12 months is unlikely, and this will materially impact MCTR’s cash flow generation and liquidity,” she stressed.

She pointed out that the daily traffic volume for the R-1 Extension of the Manila-Cavite Toll Expressway (R-1 Extension) has averaged around 10,000 vehicles to 11,000 vehicles per day since its opening in May 2011 or way materially below the expected annual average daily traffic of 47,000 vehicles.

Additionally, she added that the traffic volume of the R-1 Expressway was four percent to five percent lower than the same six-month period last year and remains in the 75,000 vehicles per day range lower than the average daily traffic projection of 94,000 vehicles for 2011.

MCTR is the financing vehicle for UEM - MARA Philippines Corp., which is wholly owned by Coastal Road Corp. UEM - MARA has rights under a toll road concession with the state-run Philippine Reclamation Authority (PRA) to design, finance, construct, and operate the Manila-Cavite Toll Expressway for a term of 35 years to October 2033.

Di Chiara said the Caa1 rating considers greater volatility for the rate of traffic growth which is materially below that forecasted by Halcrow and the company because traffic volumes and growth rates are the most critical variables for MCTR’s financial profile.

Moody’s believes it will be able to achieve annual average daily traffic of around 45,000 vehicles by June 2012 but it will still take some time for traffic volumes to increase materially, despite the completion of construction projects around the R-1 Extension in October 2011.

Furthermore, toll rates have increased a further 12 percent with the introduction of value added tax (VAT) in October.

“The prospects for increased traffic flow on the R-1 Extension remain challenging with higher gas prices and high toll rates likely to temper usage,” Di Chiara said.