Fitch Ratings has warned that a number of UK transportation hubs will fail to secure refinancing based on underperformance.
In its latest report, the ratings agency has singled out the significant risks facing projects in the greenfield toll roads sector in Greece, Portugal and Spain as well as the “highly leveraged UK regional airports”.
“Assets featuring high leverage at financial close and which have not met ambitious traffic forecasts, will struggle to refinance,” according to Fitch.
“These assets were weak initially, had speculative-grade rating characteristics, and their current exposure to refinancing risk is made worse by the aggressiveness of the original business plans.”
Numerous projects of this nature will be required to refinance their debt in 2012-14. Many large toll roads networks, main airports and diversified ports have already succeeded in financing their debts but weaker assets are potentially faced with recapitalisation or debt restructuring.
“They must secure financing at moderate prices to prove viable and as this seems unlikely, equity injections will be necessary. However, not all sponsors will be able or willing to inject equity; banks may therefore choose to exert their step-in rights or further extend loan maturities,” the report explains.
“The latter would not technically be a default, but would illustrate the lack of options for the bank, and the vulnerability of the project to the bank’s decision.”
Fitch contrasts the current economic environment with that of 2003-07, when most of the debt facilities in question were originally signed. Debt markets currently have a considerably smaller lending base as well as heightened aversion to risk.