Moody's to review credit rating of Manila-Cavite toll road operator

MANILA, Philippines - New York-based Moody’s Investors Service is reviewing the senior debt rating of Manila-Cavite Toll Road Finance Co. (MCTR) of Cayman Island for a possible downgrade 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 placed the B2 senior debt rating of MCTR on review for downgrade 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.

Moody judges obligations rated B as speculative and subject to high credit risk and have generally poor credit quality. The B2 rating is five notches below investment grade.

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 pointed out that the annual average daily tariff at the R1-Extension that was opened last May of around 9,000 to 10,000 vehicles per day from May to July was much lower than the original forecast of 47,000 vehicles per day.

Likewise, she added that the traffic volume of the existing R1-Expressway popularly known as the Coastal Road was two percent to four percent lower than the same period last year.

“We are concerned that in the current situation a significant ramp-up to 47,000 vehicles per day – the level of the original forecast – over the next six to 12 months is not easily achievable, even if the impact from the noted construction projects is removed,” she warned.

According to her, the debt service reserve account of MCTR that stood at around $31 million as of June 13 would gradually be depleted if the low traffic volume persists.

She added that approximately $160 million worth of debt securities could be affected.

The toll road operator blamed that the causes for the lower traffic volume primarily to impact of the pipe-laying project of a local water utility company on the connecting roads at the Zapote exit for the R1-Extension and existing R1-Expressway as well as the longer time needed for drivers to change their driving behavior.

The company also attributed the low volume to the interchange project and center lane elevation project on the existing R1-Expressway as well as the poor weather including higher-than-normal rainfall and frequent typhoons.

MCTR has approached Asia Halcrow Inc. – an independent traffic consulting company who prepared the original traffic and revenue forecasts for the Manila Cavite Toll Expressway - for an investigation of the situation including the causes of the lower-than-expected traffic volume and whether or not to adjust the traffic volume forecast.

Moody’s, on the other hand, has requested Bank of New York Mellon to provide more details on the calculation of Debt Service Coverage Ratios (DSCRs) and the reconciliation of bank accounts.

Di Chiara said the rating agency would re-examine Halcrow’s projections, the causes of the low traffic volumes, and the impact on cash flows and covenant compliance.

Likewise, she said Moody’s would also evaluate management’s response to the current situation including potential proposals to address the issues of low traffic volumes on the R1-Extension.