The credit rating assigned to Volga-Sport JSC (hereinafter, Volga-Sport, the Company, or the Concessionaire) is based on the moderate risks of concessions in progress, low assessment of the financial policy, high leverage, and strong liquidity.

Volga-Sport is Russia’s first concession company specializing in the construction and operation of sport infrastructure facilities. The Company was founded in 2010. The Concessionaire attracts funds from institutional investors for the implementation of social infrastructure projects by issuing concession bonds. These projects seek to improve the social policy of regions of the Russian Federation.

Key rating assessment factors

Risks related to the concessions are moderate. The Concessionaire has entered into three concession agreements with the government of the Nizhny Novgorod Region to build and operate three sports and fitness centers. ACRA assumes 100% correlation between the projects given the fact the objects of the agreement are on a long-term lease from state autonomous institutions of the Nizhny Novgorod Region, which act as operators and carry out maintenance, and the fact that the government of the Nizhny Novgorod Region acts as a concessor for all the concession agreements.

ACRA notes the highly predictable nature and stable cash flow of the Nizhny Novgorod Region projects. The assessment of the credit quality of the projects was influenced by high compensation payments that are envisaged if the targets of the financial model are not achieved, which is an integral part of the concession agreement. ACRA separately notes the highly representative historical data on timely fulfilment of concession agreements over more than eight years, and also the extensive insurance coverage provided by SOGAZ INSURANCE (AAA(RU), outlook Stable).

ACRA assesses the overall credit quality of the above projects as moderately high.

Volga-Sport and the government of the Ulyanovsk Region have entered into a concession agreement to build, equip and operate the Volga Sport Arena stadium.

This project in the Ulyanovsk Region is characterized by moderately high predictability of the cash flow, which has been unstable in the past due to systematic delays in lease payments by the tenant (Regional State Autonomous Institution Volga-Sport-Arena), which have resulted in penalties being collected via legal proceedings. The assessment of the credit quality of the project is positively influenced by high compensation payments to be made by the concessor if the targets of the financial model are not achieved (an integral part of the concession agreement), and also the extensive insurance coverage provided by SOGAZ INSURANCE.

ACRA assesses the credit quality of the above project as moderate.

Financial policy is insufficiently conservative and poorly defined. ACRA notes that the Company has no credit quality requirements for the banks with which it places proceeds from lease agreements. The cash flows from the above lease agreements are the principle source of funds to make the coupon payments and repay the par value of the bond issues. As of the date of revision of the Company’s credit rating, ACRA positively assesses the distribution of funds received from operations in deposit accounts at banks with high credit quality, namely GPB (JSC) (AA+(RU), Stable), Bank VTB (PJSC), and JSC Russian Agricultural Bank (AA(RU), outlook Stable).

ACRA will continue to monitor the credit quality of the banks with which the Company choses to deposit its funds from operations.

High leverage and medium coverage. ACRA used the ratio of total debt to FFO before net interest payments (calculated as the sum of lease payments received minus administrative expenses) to assess the Company’s leverage. The averaged ratio of total debt to FFO before net interest payments equals 4.2x for 2018–2023, which corresponds to a high level of leverage according to ACRA’s classification. ACRA assesses the level of interest coverage for leverage based on the ratio of FFO before net interest payments to net interest payments. This indicator stands at 2.6x, which is viewed by ACRA as a medium level of coverage.

Strong liquidity. The Company continues to partially buy back its bonds using available balances in order to lessen the impact of repayment periods. The nearest payment date of the Company is in 2022; the second bond issue matures in 2024. The Company had a balance of around RUB 500 mln in funds as of September 30, 2020. ACRA maintains its positive view of the Company’s ability to repay its first bond issue in 2022 and will continue to carefully monitor the financial discipline of counterparties and the degree of conservativeness of the policy for depositing available cash. In ACRA’s opinion, these factors determine the probability of the Company successfully redeeming bonds maturing in 2024.

Key assumptions

  • Leverage and debt servicing indicators maintained at their current levels;
  • Tenant promptly performs its obligations in line with the long-term lease agreements;
  • No new projects.

Potential outlook or rating change factors

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Tightening of the financial policy including by introducing requirements for banks with which the Company deposits funds.

A negative rating action may be prompted by:

  • Initiation of new projects that may have a negative effect on the Company’s credit quality;
  • Poor payment discipline of the counterparties;
  • Higher leverage or deteriorating debt servicing;
  • Decrease in credit quality of banks with which the Company deposits funds.

Rating components

SCA: bb+.

Adjustments: none.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating of Volga-Sport JSC has been assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation, Methodology for Assigning Credit Ratings to Project Finance Issuers, Instruments, and Obligations under the National Scale for the Russian Federation, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit rating of Volga-Sport JSC was published by ACRA for the first time on December 26, 2019. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.

The credit rating was assigned based on the data provided by Volga-Sport JSC, information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and Volga-Sport JSC participated in its assignment.

No material discrepancies between the provided data and the data officially disclosed by Volga-Sport JSC in its financial statements have been discovered.

ACRA provided no additional services to Volga-Sport JSC. No conflicts of interest were discovered in the course of credit rating assignment.

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Analysts

Stanislav Sidelnikov
Analyst, Project and Structured Finance Ratings Group
+7 (495) 139 04 89, доб. 128
Alexander Gushchin
Director - Head of SME Ratings, Corporate Ratings Group
+7 (495) 139 04 89, доб. 121
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