August 8 (SeeNews) - Moody's Investors Service said it assigned a definitive Baa3 rating to the $450 million (338 million euro) senior unsecured bond due in 2020 issued by Turkish port operator Mersin International Port.
The port operator is equally-owned by Turkish conglomerate Akfen Holding [BIST:AKFEN] and the Port of Singapore Authority.
The rating carries a stable outlook, in line with that of Mersin international Port's senior unsecured issuer rating, Moody's said in a statement on Wednesday.
The ratings agency said also in the statement:
"RATINGS RATIONALE
The rating on the bond is the same as the Issuer Rating, and reflects the senior unsecured nature of the bonds. The bonds contain limited covenants, the most significant of which is a 12-month backward looking consolidated net debt to EBITDA ratio test, which limits the total amount of debt to 3.5x, falling to 3.0x in August 2017 and beyond. Breach of this test will result in a lock up of dividends and a restriction on payment of subordinated debt and other equity interests.
The bonds also contain a change of control rating test, which may be triggered if the 100% joint owners, PSA International Pte. Ltd. (Aa1 Stable) and AKFEN (unrated), cease to jointly own at least 50% of MIP, or cease to control the company. If the ratings of the company are lowered as a result, the noteholders may put the bonds back to the company to be redeemed at par, which could create a refinancing requirement at that point.
The ratings are predicated on the assumption that the proceeds of the bond and the proceeds of a new bank loan facility, which will rank pari passu with the bond, will be used to refinance all current outstanding debt of the company. The new bank loan facility will be used to repay an existing USD155m mezzanine loan currently guaranteed by PSA International Pte Ltd ("PSA") and the financial close of the loan is likely to take place after the financial close of the bond. Following the full repayment of the senior bank loan, the bond will rank pari passu with the USD155 million mezzanine loan.
RATIONALE FOR STABLE OUTLOOK
The stable rating outlook reflects Moody's expectation that MIP's volumes will grow at a rate at least equal to GDP growth in Turkey, and that the company will be able to continue to increase tariffs at a rate close to inflation. Moody's expects that the company will generate strong positive cash flow from 2015 onwards, and be able to build up strong cash balances, offsetting refinancing risk.
WHAT COULD CHANGE THE RATING UP/DOWN
Moody's considers an upgrade of MIP's rating in the next two years to be unlikely, even in the event that container volumes increase at a higher growth rate than that anticipated by the rating agency.
Moody's could downgrade MIP's rating in the event that the company did not achieve cash flow ratios of FFO/debt of at least 18%, and an FFO interest cover ratio of at least 3.0x. This could occur if container volumes remained static during and after the proposed increase in container capacity, or the company was not able to pass through cost increases to customers on a consistent basis.
Moody's could also downgrade the rating in the event that PSA decides to reduce its ownership interest in MIP or if the rating of the Government of Turkey were to see a significant downwards rating transition. Furthermore, the rating could come under negative pressure if MIP's concession agreement is at risk of being terminated for whatever reason."
($ = 0.751 euro)