S&P puts 407 on watch

S&P said it placed 407 International Inc.’s A senior debt and BBB subordinated debt ratings on CreditWatch with negative implications.

“Since our last review in May 2020, the traffic on 407 International Inc. has failed to recover to our expected levels because of delayed return to work policies, more parents than initially expected choosing online schools, and prolonged lockdown with a surge in Covid-19 cases. We expected that traffic would recover to about 85% of 2019 actual traffic by September 2020; however, the traffic has recovered to only about 60%,” S&P said in a press release.

The agency said it now forecasts the project’s debt service coverage ratio to be around 1.5x-1.6x for 2020 compared to its previous expectation of close to 2x and below S&P’s sustained DSCR requirement of 1.75x at the rating level. “Additionally, there remains the risk of huge congestion payments in 2021 and 2022, if relief is not provided under the concession agreement,” S&P said.

The placement reflects that S&P could lower the rating by at least one notch if it sees the project’s sustained senior DSCR below 1.75x. Any downgrade will be after updating S&P’s traffic and revenue forecast and/or if liquidity weakens significantly without certainty over the congestion payment, the agency said.

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