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The Brisa CaseCorporate Reestructuring
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TABLE OF CONTENTS
Company description 3
Industry overview 5
Restructuring rationale 7
Event description 6
Company performance 7
Critical evaluation 8
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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
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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).
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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
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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:
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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:
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RESTRUCTURING RATIONALE
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
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RESTRUCTURING RATIONALE
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
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RESTRUCTURING RATIONALE
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:
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RESTRUCTURING RATIONALE
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:
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RESTRUCTURING RATIONALE
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:
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EVENT DESCRIPTION
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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
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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
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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
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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
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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
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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.
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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
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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.
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