Permission to reprint or distribute any content from this presentation
requires the prior written approval of Standard & P...
• Basis for assessment: project or corporate
• Rationale of the road and how it influences the
outcome
• Establishing a tr...
Brief Background on Rating
Methodology
What does an S&P rating mean?
4
Correlation of ratings to defaults
5
Basis For Assessment – Project
Finance or Corporate
• Corporate Methodology
• Major update published in November 2013
• Supplemented by Transportation Infrastructure Key Cred...
• Primarily driven by structure
• Project Finance methodology if:
• Fully secured
• Comprehensive covenants and detailed c...
• At a high level, very similar approach
• Assessment of business and financial risk
• Predictability of revenue, a functi...
Corporate Methodology
10
Proposed Project Finance Methodology
11
• For a project, financial analysis is over the life of
the project compared to a 3-to-5-year horizon for
a corporate
• Pa...
Rationale of the road and how it
influences the outcome
4 factors will influence the relative strength:
• Road Rationale
• Value proposition compared to alternatives
• Growth dri...
In other word, what is the reason for building this
new road?
• Missing link of a wider network
• Overcoming geographical ...
In other word, what will attract users to the road?
• Network congestion
• Quality of alternative roads
• Multimodal compe...
• Local and regional wealth
• Employment and demography
• Reliance on induced traffic
• Private or commercial users
• Comm...
Establishing a traffic forecast
for a road with no history and
how to factor the downside risk
• Importance of reliable and meaningful traffic
count
• Value of time for future users
• Congestion does not have the same...
• Determine key traffic growth for similar roads
(e.g. GDP, employment or population)
• Future residential / commercial de...
• Macro-economic drivers driving underlying
growth
• Network development
• Competition
• Legislative changes
What will dri...
Still, a great potential for variations
22
Permission to reprint or distribute any content from this presentation requires the prior written approval of
Standard & P...
Copyright © 2014 by Standard & Poor’s Financial Services LLC. All rights reserved.
No content (including ratings, credit-r...
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Thomas Jacquot, Standards & Poor's Ratings Service - Key drivers for assessing a road project from a rating perspective

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Thomas Jacquot, Director, Corporate & Government Ratings, Standards & Poor's Ratings Service delivered the presentation at the 2014 Major Road Projects Conference.

The Major Road Projects Conference brings together government officials with those responsible for the planning, financing and construction of Australia’s critical road infrastructure to discuss future plans. It offers a practical assessment of the strategy necessary to ensure Australia’s current and future major roads projects are successful.

For more information about the event, please visit: http://www.informa.com.au/roadprojectsconference

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Thomas Jacquot, Standards & Poor's Ratings Service - Key drivers for assessing a road project from a rating perspective

  1. 1. Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Copyright © 2014 by Standard & Poor’s Financial Services LLC. All rights reserved. Key Drivers For Assessing A Road Project From A Rating Perspective Thomas Jacquot Director Corporate & Infrastructure March 11, 2014
  2. 2. • Basis for assessment: project or corporate • Rationale of the road and how it influences the outcome • Establishing a traffic forecast for a road with no history • How to factor downside risks Agenda 2
  3. 3. Brief Background on Rating Methodology
  4. 4. What does an S&P rating mean? 4
  5. 5. Correlation of ratings to defaults 5
  6. 6. Basis For Assessment – Project Finance or Corporate
  7. 7. • Corporate Methodology • Major update published in November 2013 • Supplemented by Transportation Infrastructure Key Credit Factors paper • Project Finance • Published in 2007 • RFC for major update published in late 2013, expected to be finalised during 2014 • Will bring greater clarity • Will be supplemented by Road, Bridge and Tunnel Key Credit Factors paper Methodologies Available 7
  8. 8. • Primarily driven by structure • Project Finance methodology if: • Fully secured • Comprehensive covenants and detailed cash management • Limited purpose • Examples: Lane Cove, Cross City • Otherwise, corporate methodology • Example: Transurban How to determine which one to used? 8
  9. 9. • At a high level, very similar approach • Assessment of business and financial risk • Predictability of revenue, a function of the road’s market position, will drive the business risk analysis • Determining the base case parameters will drive the financial risk analysis What are the differences? 9
  10. 10. Corporate Methodology 10
  11. 11. Proposed Project Finance Methodology 11
  12. 12. • For a project, financial analysis is over the life of the project compared to a 3-to-5-year horizon for a corporate • Parent influence is generally more a consideration for a corporate But there are some differences 12
  13. 13. Rationale of the road and how it influences the outcome
  14. 14. 4 factors will influence the relative strength: • Road Rationale • Value proposition compared to alternatives • Growth drivers • User characteristics What defines a “strong” road? 14
  15. 15. In other word, what is the reason for building this new road? • Missing link of a wider network • Overcoming geographical constraints • Response or enabler of traffic growth Road Rationale 15
  16. 16. In other word, what will attract users to the road? • Network congestion • Quality of alternative roads • Multimodal competition Value Proposition 16
  17. 17. • Local and regional wealth • Employment and demography • Reliance on induced traffic • Private or commercial users • Commuter or leisure traffic Growth Drivers & User Characteristics 17
  18. 18. Establishing a traffic forecast for a road with no history and how to factor the downside risk
  19. 19. • Importance of reliable and meaningful traffic count • Value of time for future users • Congestion does not have the same meaning everywhere • Multipliers can materially distort the outcome as forecasts are initially based on limited part of a single workday Validation of network model is critical A reliable forecast starts from a reliable network model 19
  20. 20. • Determine key traffic growth for similar roads (e.g. GDP, employment or population) • Future residential / commercial development • Future network enhancement • Ascertain slope and length of ramp-up • User rejection of the road How to forecast traffic growth? 20
  21. 21. • Macro-economic drivers driving underlying growth • Network development • Competition • Legislative changes What will drive variations from base case? 21
  22. 22. Still, a great potential for variations 22
  23. 23. Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Copyright © 2014 by Standard & Poor’s Financial Services LLC. All rights reserved. Thank You Thomas Jacquot Director T: +61 (2) 9255.9872 thomas.jacquot@standardandpoors.com
  24. 24. Copyright © 2014 by Standard & Poor’s Financial Services LLC. All rights reserved. No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees. Australia Standard & Poor’s (Australia) Pty. Ltd. holds Australian financial services license number 337565 under the Corporations Act 2001. Standard & Poor’s credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act). STANDARD & POOR’S, S&P, GLOBAL CREDIT PORTAL and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC.
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