brisa restructuring

7/28/2019 Brisa Restructuring

1/22

The Brisa CaseCorporate Reestructuring


2/22

Marta Rodrigues da Ponte | Paulo Tapada Santos |

Raul Pvoa | Ricardo Esperana |

Sara Costa Pinto

LEARNHOW TOHEALTHE

WORLD

TABLE OF CONTENTS

Company description 3

Industry overview 5

Restructuring rationale 7

Event description 6

Company performance 7

Critical evaluation 8


3/22



Sara Costa Pinto

LEARNHOW TOHEALTHE

WORLD

COMPANY DESCRIPTION

Source: Brisa Investor Presentation

Company Overview Brisa Auto-estradas de Portugal was created in 1972 and has, of today, a market capitalization c.3 000 mn.

Brisa shares are quoted on Euronext Lisbon, where it is part of the main index, the PSI-20. It is also part ofEuronext 100 an index which includes the largest companies in France, Holland, Belgium and Portugal and the

FTSE4Good, the reference index for social responsibility.

Brisas main business area is the construction and operation of tolled motorways, both through direct investments

in Portugal, as well as through its national and international subsidiaries.

The remaining businesses managed by the company complement its core business providing services associated

to road safety and driving comfort in both motorway and urban environments


4/22



Sara Costa Pinto

LEARNHOW TOHEALTHE

WORLD

COMPANY DESCRIPTION

Operational Highlights 1187,3 km, 11 motorways

Includes the main road corridors with the highest importance in the Portuguese motorwaystructure

Concession term until 31st December 2035

Tariffs increase at 100% of CP, although from 2012 8.5% of the increase will revert to EP

(State)

93% of the Main Concession is tolled, leaving access to the Lisbon and Porto metropolitan

areas free of charge (under terms of concession agreement)

Financial Highlights By March 2012, Brisa total net profit amounted to 10mn

Operating revenues totalized 134,7 mn as consolidated operating costs excluding

amortisation, depreciation and provisions figured 42,7 mn

Total Equity and Non-controlling interests of1.329,1 mn

Total consolidated debt amounted to 4.213 mn mainly focused, per business area, on

BCR ( 2.429 mn) through Bonds and EIB and on Project Finance (1.765 mn) through AE

DL

(854 mn) and Brisal ( 518mn).


5/22



Sara Costa Pinto

LEARNHOW TOHEALTHE

WORLD

INDUSTRY OVERVIEW

Operational Highlights Brisa is the leading player in an industry where its competitors are Auto-

Estradas do Atlntico, Ascendi and Lusoponte

As of 2010, Portugals Total Network Length was of 1.701,3 Kms of

motorways. Brisa controled more than 65% which represents little over 18% in

terms of Annual Average Daily Traffic

In Operation(km)2010

In Construction(km)2011

Annual AverageDaily Traffic

2010

AUTO-ESTRADAS DOATLNTICO

170,0 70,9 19.155

ASCENDI 141,0 - 33.603BRISA 1.187,3 5,6 30.634LUSOPONTE 24,0 - 85.346


6/22



Sara Costa Pinto

LEARNHOW TOHEALTHE

WORLD

INDUSTRY OVERVIEW

Financial Highlights Total Revenues in the Industry amounted to 725,3 millions of Euros in 2010

Brisa has a share of over 73% in revenues considering its competitors

Investments were not scarce in 2010 but mainly due to Ascendis growth strategy.

Brisas investments centered more in Improvements of existing infrastructures

Source:


7/22



Sara Costa Pinto

LEARNHOW TOHEALTHE

WORLD

RESTRUCTURING RATIONALE

In August 2008, markets were highly volatile, due to the subprime crisis that had begun in the USA, which

will directly impact the capacity of some corporate with high leverage ratios (D/V of 75% in December

2008) to refinance its obligations. On the other hand, the macroeconomic forecasts anticipated lowerGDP growth and subsequently lower traffic on BRISAs concessions.

Thus, in 4th of August 2008 Moddys had revised Brisas long term debt rating from A3 to Baa1 arguing

that: the downgrade reflects Brisa's continuing high level of indebtedness following the award of the

Douro Litoral concession and delay in the sale of a part of Brisa's shareholding in the Northwest Parkway

concession acquired in November 2007 (full document attached)

Three days later, Brisa announced that Standard & Poors Rating Service also had reviewed Brisas longterm debt rating from BBB+ to BBB, keeping the Negative Outlook, which will worsen the cost of floating

debt (document attached)

Source:


8/22



Sara Costa Pinto

LEARNHOW TOHEALTHE

WORLD


At the end of the year, and following the market researchers

worst forecast, Brisa reported earnings of 151 million ( - 41%

comparing to 2007) and higher debt level to finance new projectssuch as Douro Litoral concession.

The BRISAs business model assume that Portuguese state

periodically has to pay the service provide by BRISA based on

the public partnership signed for each project. Although, the

sovereign debt also becomes a problem, which could impact

negatively the capacity of the Portuguese Republic to fulfill its

obligations. So, the EIB, the main debt holder (23,5% of totaldebt) for the old and most important concessions met with

Portuguese Republic and Brisas board in order to spin off the

mature concessions and the linked debt into a new company

wholly owned Brisa. The transactions was announced in 23rd of

December 2008 (attached) having taken two years to be realized

due to all the diligences required:

DueDiligence

Consent

from the

Grantor

EIBNegotiation

Creation ofBrisa O&M

RatingsAssessement

Implementationof new structure


9/22



Sara Costa Pinto

LEARNHOW TOHEALTHE

WORLD


Current Structure as of 2008

According to the marketing material for distribution, the current

group structure had become sub-optimal , the main concessionwas held within the groups top company and financed on a

corporate basis, while other concessions were held in separate

subsidiaries and funded on project finance basis.

New structure proposed

Brisa SA became a pure holding company and the main

concessions were transferred to a new concession company, the

Brisa Concession. On the other hand, O&M activities of the

group would be carried out by a new company, BRISA O&M

which had promoted great synergies. Finally, and as expected

by debt holders (EIB), all the existing corporate debt wastransferred to the Brisa Concession

Brisa Parent Co

Main Concession

O&M Co

Brisa

Concession

Douro

Concession

Atlantico

Concession

Baixo Tejo

Concession

Litoral Oeste

Concession

International

Concessions

Brisa

Holding

Brisa

Concession

Douro

Concession

Atlantico

Concession

Baixo Tejo

Concession

Litoral Oeste

Concession

Brisal

Concession

Brisa

O&M


10/22



Sara Costa Pinto

LEARNHOW TOHEALTHE

WORLD


Main advantages of the corporate structure for debt holders:

Following the restructuring, BCRs corporate purpose will be restricted to owning and operating the Brisa

concession, and therefore the debt at the BCR level will not be exposed to any new concessions or other

business that Brisa S.A. takes on. This differs from the previous structure, where bondholders were

exposed to all activities of Brisa S.A. and, as such, the increased stability implied by the new structure is

a credit positive.

The concession contract, which was amended in December 2008 to allow for a transfer to BCR, does not

allow Brisa S.A. to sell any more than 33% of its holding in BCR without the grantors approval, and BCR

must continue to own 100% of the concession. As such, it would not be possible for control over BCR to

be transferred to another sponsor without the grantors approval, thereby mitigating the risk that transfer

of BCR to another weaker, less experienced and less committed sponsor could occur.

Furthermore, under the finance documents

BCRs board of directors will be required to

include a minimum of three independent

directors at all times, who will hold veto

rights over proposed equity distributions

and the execution, amendment, renewal,

suspension or termination of any of BCRs

contracts. While not a major rating driver in

Fitchs analysis, it is clear that this

provision enhances the corporate

governance of the concessionaire.

Source:


11/22



Sara Costa Pinto

LEARNHOW TOHEALTHE

WORLD


Main advantages of the corporate structure for shareholders

By the debt restructuring agreement, the short term refinance risk almost disappeared given that the

average maturity was extended by 5 years as well as the amortizing schedule. Thus, the Brisas financial

obligations was reduced in 260 millions until 2015, being free to pay more dividends or retain the

dividends to finance new projects.

The mentioned restructure also gave more visibility of assets, allowing clearer portfolio management

approach and giving visibility over the value of each business .

The spin off also contributed to higher business units efficiency, focusing management team due to the

segment approach maximizing the economic and financial potential.

Solid financial structure for the entire concession period, allowing a high dividend pay out ratio as well as

strong investment grade, which could be attractive among the portfolio managers.

Source:


12/22



Sara Costa Pinto

LEARNHOW TOHEALTHE

WORLD


In December 2010, Brisa announced to the market the successful completion of the corporate

reorganization process which had been prepared during two years and, with the completion of this

transaction, the bonds issued by Brisa Concessao Rodoviria SA. (the new entity) become rated A-

(Fitch) and Baa1 (Moodys)

Source:


13/22



Sara Costa Pinto

LEARNHOW TOHEALTHE

WORLD

EVENT DESCRIPTION


14/22



Sara Costa Pinto

LEARNHOW TOHEALTHE

WORLD

COMPANY PERFORMANCE

Our analyses is performed over 3 major periods:

1. Before the announcement (Dec 2005 Dec 23, 2008)

2. Between announcement and effective date (Dec 23, 2008 to Dec 23, 2010)

3. After effective date (Dec 23, 2010 to today)

Data

Stock Prices on Brisa, Abertis (comparable company) and indexes PSI 20 and SPGTIND Index (S&P

Global infraestruture index)

Restructuring announcement on Dec 23, 2008

Restructuring conclusion and effective date on Dec 23, 2010

Event Period Analysis: +/- 40 days for announcement and effective dates

Methodology

Two different analysis were made:

1. Stock performance analysis: comparison of Brisas returns with SPGTIND index for each period

referred and event analysis against comparable companies and PSI 20.

2. Financial ratios analysis


15/22



Sara Costa Pinto

LEARNHOW TOHEALTHE

WORLD

COMPANY PERFORMANCE

Before the announcement Period

Brisa outperformed slightly industry index

between 2006 and 2007, however since middle

2007 and in a strong way during 2008 Brisa

provided a worst return than its industry index

leaving abnormal returns to decline as

presented in graph.

At this time Brisa's stock was suffering from the

Portuguese Rating downgrade which led to the

decision to implement the restructuring under

analysis.

50

100

150

Nov-05

Jan-06

Mar-06

Mai-06

Jul-06

Set-06

Nov-06

Jan-07

Mar-07

Mai-07

Jul-07

Set-07

Nov-07

Jan-08

Mar-08

Mai-08

Jul-08

Set-08

Nov-08

Brisa and SPGTIND inde x perf ormance - Before announcement

Brisa SPGTIND Index


16/22



Sara Costa Pinto

LEARNHOW TOHEALTHE

WORLD

COMPANY PERFORMANCE

Between announcement and effective date

The restructuring announcement provided an

abnormal return of 1,46% in Day 1 over PSI 20,

but the following days and the long run shows

a poor performance from Brisa against

Portuguese index and its peers as depicted in

both graphs.50

100

150

Brisa and SPGTIND index performance - Betweenannouncement and effective date

Brisa SPGTIND Index

80

85

90

95

100

105

110

115

120

125

130

-40 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 40

Stock Evolution between days -40 and 40

Brisa PSI 20 Benchmark - SPGTIND Index Abertis


17/22


Raul Pvoa | Ricardo Esperana |Sara Costa Pinto

LEARNHOW TOHEALTHE

WORLD

COMPANY PERFORMANCE

After effective date

On the announcement date of restructuring

conclusion, stock market didn't give any

abnormal return on this day which means stock

market have already assumed all effects before

this last announcement.

In long run we conclude that this restructuring

didnt have a positive impact for shareholders

as Brisas stock have performed worst than its

peers and indexes during the periods under

analysis.

0

50

100

150

Dez-10

Jan-11

Fev-11

Mar-11

Abr-11

Mai-11

Jun-11

Jul-11

Ago-11

Set-11

Out-11

Nov-11

Dez-11

Jan-12

Fev-12

Brisa and SPGTIND index performance - after effectivedate

Brisa SPGTIND Index

80

85

90

95

100

105

110

115

120

125

130

-40 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 40

Stock Evolution between days -40 and 40

Brisa PSI 20 Benchmark - SPGTIND Index Abertis


18/22



LEARNHOW TOHEALTHE

WORLD

COMPANY PERFORMANCE

Ratios 2004 2005 2006 2007 2008 2009 2010 2011EBITDA Margin 75,2% 73,4% 74,7% 73,8% 76,0% 68,0% 53,5% 73,1%

EBIT Margin 56,3% 52,8% 52,5% 45,2% 43,6% 33,6% 8,1% 42,4%

Profit Margin 34,2% 53,2% 29,9% 41,7% 23,9% 23,2% 120,4% -13,0%

Return on Assets 4,4 7,1 3,8 5,3 2,8 2,7 13,7 -1,3Return on Common Eqty 13,3 19,0 10,6 16,4 10,2 11,3 48,7 -4,8

Asset Turnover 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,1

Assets/Equity 2,7 2,7 2,8 3,2 4,1 4,0 3,2 4,9

Current Ratio 0,6 0,5 0,7 0,6 0,4 0,4 2,5 1,4

Quick Ratio 0,5 0,4 0,7 0,5 0,3 0,3 2,4 1,3

Total Debt/Total Equity 148,3 146,5 164,1 196,3 279,1 262,7 187,8 339,2

Net Debt/EBIT 7,1 7,0 8,0 11,4 13,3 15,4 42,2 13,2

EBIT to Interest Expense 3,3 3,5 3,7 2,5 1,6 1,5 0,4 2,0

Net Debt/Equity 145,4 127,3 151,0 189,6 268,9 249,9 116,1 265,9

Cash Flow-Oper Activities 340,5 323,9 298,5 335,4 547,1 444,4 420,0 164,3

Capital Expenditures 189,1 348,0 525,7 801,1 621,6 107,4 108,7 76,5Free Cash Flow 151,4 24,2 227,2 465,7 74,5 337,1 311,3 87,9

Higher interests have affected Brisa in recent years, which decreased substancialy the profit margin. The

profitability deteriorated in last year 2011 (Profit Margin, RoA,RoE);

Financial leverage and liquidity have increased significantly in book and market value since 2010

In the last years, less traffic lowers the capex (since some of widening projects do not became

necessary), which give the change to improve the Free Cash Flow


19/22



LEARNHOW TOHEALTHE

WORLD

COMPANY PERFORMANCE

Brisa Peers Comparison

Brisa Abertis Atlantia Brisa Abertis Atlantia Brisa Abertis Atlantia Brisa Abertis Atlantia Brisa Abertis Atlantia

Current n/a* 7,4 8,8 18,1 15,6 9,8 0,9 1,8 1,6 12,6 3,4 4,0 -0,2 1,3 0,92011 n/a* 13,6 10,9 17,8 16,3 10,1 0,9 3,0 2,2 12,2 2,9 6,0 -0,1 0,9 1,1

2010 3,9 17,1 13,0 100,0 17,6 10,8 1,6 2,4 2,8 5,9 4,5 4,9 0,3 0,8 1,1

2009 27,6 16,5 18,3 34,7 18,3 12,7 3,2 2,5 3,6 4,3 3,8 4,1 0,3 0,8 1,0

2008 20,6 14,2 10,4 24,6 16,6 11,1 2,3 2,5 2,0 5,8 4,8 5,4 0,3 0,8 1,1

2007 22,8 20,1 40,3 32,6 18,8 15,7 3,6 3,6 4,1 3,1 2,5 2,6 0,4 0,9 1,0

2006 33,8 25,0 18,8 27,1 19,9 13,9 3,6 3,9 3,5 3,0 2,2 1,6 0,3 0,7 1,0

2005 14,3 24,0 18,2 21,5 19,8 14,0 2,6 4,1 3,7 3,8 2,4 1,5 0,5 0,6 1,0

* negative earnings

EV/EBIT P/Book Dividend yield (%) EPS adjustedP/E

Brisa is relatively less cheaper than Peers,

Based on multiples, we prefer Abertis and Atlantia, because in our view they provide the most attractive

risk-reward balance, with appealing earnings growth.


20/22



LEARNHOW TOHEALTHE

WORLD

CRITICAL EVALUATION

Brisa share price evolution seems to underline the deployed restructuring has not

been value creative (eg there was value destruction) in

absolute terms as

Brisasclosing price has been, since the effective date, belowits first day price; and

relative terms as Brisas performance was more negative than its peer (Abertis)

as well as industry benchmark

In our view, such disappointing performance was due to the following factors:

i) Weak portuguese traffic: significant global drop in traffic in the recent years

ii) Downgrades in the Republic of Portugal rating : Brisa is inable to totally

disconnect itself from the local economy and market circunstances, so it isexpose to the stresses in the Portuguese debt markets;

iii) Poor outlook for the motorway markets

iv) Difficulties to find new investment with attractive ROI, not only internally but

especially abroad. Brisa is in consolidation stage where no significant growth is

expected in the following years

v) Fuel Prices: high fuel prices which had a significant role in the traffic behaviour


21/22



LEARNHOW TOHEALTHE

WORLD

CRITICAL EVALUATION

Outlook for Brisa:

High risks remain. We forecast challenging times ahead forBrisa due to :

1) a weak Portuguese economy, delayed recovery due to structural problems and low

productivity,

2) the company being financially stretched with a strong probability of dividend cuts by

2013,

3) Further credit rating downgrades of BCR's debt (as directly linked to Portuguese

sovereign debt rating) resulting in rising refinancing risks and costs,

4)increasing operational weight of non-profitable subsidiaries, and5) High correlation to Portuguese bond yields.


22/22

THANK YOUThis assignment was performed by:

brisa restructuring

Documents