Standard & Poor's Ratings Services said today that it has raised its long-term issuer credit rating on Russian public transport company Mostransavto to 'CC' from 'SD' (selective default). At the same time, Standard & Poor's raised its long-term debt rating on the company's Russian ruble (RUR) 7.5 billion senior unsecured bond to 'CC' from 'D'. Standard & Poor's also raised its Russia national scale ratings on the company and the debt issue to 'ruCC', from 'ruSD' and 'ruD' respectively. All ratings were placed on CreditWatch with developing implications, meaning that the ratings could be raised, lowered, or affirmed upon resolution of the CreditWatch listing.
"These rating actions follow Mostransavto's repayment on Dec. 25, 2008, of the overdue amounts of the approximate RUR480 million coupon and RUR975 million principal installment related to its rated RUR7.5 billion (nominal value) bond, and of another RUR1 billion bank loan," said Standard & Poor's credit analyst Felix Ejgel.
The bond was placed by fully-owned special purpose vehicle OOO Mostransavto-Finance on Dec. 25, 2007.
Based on our understanding, a portion of the bond/coupon payments due on Dec. 23, 2008, had been delayed, owing to the ongoing resolution of some complex transactions between one of the bondholders and Moscow oblast-owned companies. This situation has now been resolved, and Mostransavto made the final payment, having already reserved the necessary cash to honor these obligations.
Mostransavto fully repaid its RUR1 billion bank loan on time, on Dec. 25, 2008, albeit with financial support from the budget of the Moscow Oblast ('SD'; Russia national scale rating 'ruSD'), which fully owns the company. Mostransavto continues to honor its obligations with respect to its remaining RUR3.1 billion of unrated loans.
The Moscow Oblast provides Mostransavto with ongoing financial support in the form of operating subsidies and guarantees, and services a part of the company's leasing and debt payments directly from the regional budget. Another positive credit factor is Mostransavto's near-monopoly position in the regional public transport market, which could strengthen through ongoing investments.
We plan to resolve the CreditWatch status within the next few weeks, after we have reviewed the Moscow Oblast's refinancing scheme for its total tax-supported debt, which we expect it to finalize by year-end 2008. We will also have to gain more visibility on the probability of the oblast providing timely support to Mostransavto, as well as on the sustainability of the company's financial model, its likely performance, and its debt burden over the medium term.
"If the company takes on material additional short-term debt to support its currently weak liquidity, this could lead to a further deterioration in its creditworthiness and put pressure on the ratings," said Mr. Ejgel. "Conversely, we could affirm or raise the ratings if the company strengthens its liquidity and ensures timely support from the oblast."
Longer-term maturities and an easing the debt burden in the medium term would also be a key consideration for any positive rating action.