Fitch Affirms Lima Airport Partners S.R.L. Sr. Notes at 'BBB'; Outlook Stable

Fitch Ratings has affirmed the 'BBB' rating on Lima Airport Partners S.R.L.'s USD164 million senior notes due in 2022. The Rating Outlook is Stable.

KEY RATING DRIVERS

--ROBUST TRAFFIC BASE WITH CONSIDERABLE CARRIER CONCENTRATION: Located in Lima, the Jorge Chavez International Airport (JCIA) serves as the main gateway to the country, serving nearly 90% of the total air traffic of one of the largest metropolitan areas in Latin America. The enplanement base of approximately 7.5 million has grown at a favorable average annual rate of 12% since 2007. The airport principally functions as an origin and destination (O&D) facility. However, its geographic location, in the northern region of the South America cone, offers an attractive platform for connecting flights across the continent with limited competition. LATAM Airlines Group S.A. (LATAM, rated 'BB'; Outlook Stable) constitutes over half of the total traffic at JCIA. However, counterparty risk is partially mitigated by the airline's global scope, continued growth and regional diversification. (Revenue Risk: Volume - Stronger)

--TRANSPARENT RATE ADJUSTMENT MECHANISM: The project's concession agreement includes a predetermined formula to adjust rates annually, which allows for cost recovery on a timely basis. Rates at the airport are competitive in the region, and provide for an adequate revenue generation to meet improvement requirements and financial obligations. (Revenue Risk: Price - Midrange)

--ADEQUATE DEBT STRUCTURE: LAP's notes are issued with a fixed coupon rate and follow a quarterly amortizing schedule. With a nine-year tail, the notes have lower refinancing risk. Other structural protections include an insurance policy provided by Bank of America Corporation, rated 'A'/'F1' to cover nine months of debt service (principal and interest), and a sound distribution test of 1.25 times (x) debt service coverage ratio (DSCR) both 12-month backward-looking and forward-looking for every remaining quarter. Moderate Net Debt/CFADS (cash flow available for debt service) is calculated at 2.28x. (Debt Structure - Midrange)

--CAPITAL INVESTMENT PROGRAM REQUIRES ADDITIONAL FUNDING: The airport will require a significant investment program to execute the construction of a second runway, as established in the concession agreement and to expand the airport to meet future demand. Final cost figures and funding sources will be determined at a later date. Current planned maintenance and budget are considered suitable to sustain the facilities. (Infrastructure Development/Renewal - Midrange)

WHAT COULD TRIGGER A RATING ACTION

--Additional leverage: Debt financing of the capital investment program materially reducing financial flexibility beyond expectations could result in a downgrade of the notes.

--Revenue Growth: Sustained and material deviation from traffic growth expectations could positively or negatively affect the rating.

SECURITY

The notes are secured by all revenues at JCIA collected in connection with the services and facilities furnished by LAP, all assets including all the issuer's rights under the Concession Agreement pursuant to the Trust Agreement.

CREDIT UPDATE

The affirmation of the 'BBB' rating is supported by the combination of continued strong enplanement trends, a low Net debt to CFADS ratio, currently at 2.28x, and strong debt service coverage ratio at 2.80x.

The airport continues to benefit from its location and infrastructure facilities resulting in higher domestic, international, and cargo levels. Stability on passenger traffic is underpinned by an adequate mix of leisure and business travelers and a growing domestic middle class.

The enplanement base for the airport reached approximately 7.5 million in 2013. Additionally, during 2013, international and domestic traffic grew versus 2012 by 8.8% and 14.7%, respectively. Domestic traffic now represents 53.1% of total air traffic at JCIA and highlighting greater consumer demand towards air transport over other modes in Peru. In the aggregate, total passengers transported at the airport during 2013 increased 11.9% over 2012.

JCIA has a significant carrier concentration with LATAM having the largest presence via their LAN and TAM airline brands. In 2013, LATAM had a domestic market share of approximately 66%, and a 41% share of the international market. Total market share for the group was approximately 54%.

Additional debt is projected to be issued to fund the capital expenditures (capex) program which includes the construction of a new terminal and a second runway. Fitch expects increased debt financing with these investments to increase leverage ratios in the near- to medium-term.

Planning for the airport expansion is expected to begin this year with construction beginning in 2015. As established by the Concession Agreement, LAP will have five years to complete the construction of the second runway, after 100% of the land for the runway is received.

The runway property is currently scheduled to be handed over to LAP by the end of 2015. However, there is a possibility that the current schedule could be delayed further as the land has a busy avenue that traverses it on the northern end. To deal with this issue, a tunnel must be built prior to construction of the runway. The auction for the construction is scheduled to occur this year with construction scheduled for 2015. This would enable construction of the runway to begin in 2016 or 2017. Fitch considers additional leverage in the agency's projections and cash flow analysis.

Fraport's global expertise continues to maintain the airport in optimal conditions, allowing for more efficient services and keeping operating expenses relatively stable. During the first 11 months of 2013, total operating expenses (opex) increased approximately 7% with respect to the same period in 2012, maintaining an adequate cost profile.

Tariffs remained relatively constant and include the revised x-factor established by: Organismo Supervisor de la Inversion en Infraestructura de Transporte de Uso Publico (OSITRAN) for the 2014-2018 period of 0.05%.

The JCIA Concession was granted by the Ministry of Transportation, Communications, Housing and Construction (MTC) of the Peruvian Government which expires in 2031, nine years after the maturity of the rated notes, and with an automatic right of renewal for additional 10 years upon receipt of written notice from LAP.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012);

--'Rating Criteria for Airports' (Dec. 13, 2013).

Applicable Criteria and Related Research:

Rating Criteria for Airports

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656970

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=814863

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