The new tax that the French government has introduced on long-distance transport infrastructure--mainly toll roads and airports--will test the flexibility of rated operators' financial policies. For each operator, the tax amounts to 4.6% of revenue over €120 million per year from 2024.

S&P Global Ratings now reflects the new tax in the projected financials of the operators in scope. Although this does not have a material bearing on our ratings as of today, we expect it to weaken operators' credit metrics due to the negative impact on their adjusted funds from operations. This could delay their deleveraging unless they mitigate the impact on cash flow by taking remedial actions, for example, curtailing discretionary dividends. Some operators may reduce their dividends automatically due to the lower net income as a result of the new tax, depending on their payout policies and reserves available for distribution.

We understand that most of the affected operators intend to appeal the new tax through the courts. This could take several years to play out. Prolonged uncertainty on the tax's legality may influence our view of the strengths of the regulatory framework for French transport infrastructure operators.

The French government first announced the new tax on long-distance transport infrastructure in October 2023 (see "Proposed Tax Tests French Infrastructure Regulatory Framework," published Oct. 16, 2023), and included it in the French finance bill that entered into force on Jan. 1, 2024. The terms of the tax are largely in line with the draft submitted to the National Assembly in October last year. The details of the tax's application are still due to be laid out in a decree of implementation.

Of all the French long-distance transport infrastructure operators that we rate, we understand that the four largest toll-road concessionaires--Autoroutes du Sud de la France S.A. (ASF), Cofiroute S.A., Sanef S.A., and Autoroutes Paris-Rhin-Rhone S.A. (APRR)--and the airport operator, Aeroports de Paris S.A. (ADP), are liable to the new tax.

At this stage, it is still unclear to us if the tax would apply to rail group SNCF S.A., while we do not expect rail group Getlink SE and car park operator Indigo Group S.A. to be liable. For Getlink, this is because its rail infrastructure operator Channel Link is not wholly located in France, and for Indigo Group, it is because we understand that car parks are not considered to be long-distance transport infrastructure. In addition, concessionaires within Indigo Group would also be unlikely to meet the minimum threshold of €120 million of annual revenue.

How We Reflect The New Tax In Our Analysis

First, we incorporate the new tax into the rated operators' projected financials. Although we expect this to weaken their credit metrics, the tax does not have a material bearing on our ratings as of today. However, it may require some operators, particularly those with a short concession life, to reduce discretionary dividends in order to deleverage in line with our expectations and thus maintain the current stand-alone credit profiles.

Second, prolonged uncertainty on either the compensatory measures or the legality of the tax may influence our view of the strengths of the regulatory framework for transport infrastructure operators in France. This is particularly the case for operators that have an excellent business risk profile. ASF, Cofiroute, and APRR fall into this category.

Our assessment of the regulatory framework not only derives from our view of its stability, but also how much protection the legal system affords it. Most of the rated operators affected have announced that they will appeal the tax in the courts, and the outcome and timing of such appeals are important considerations in our assessment. These legal challenges may take several years to conclude.

Positively, a revision of ASF's, Cofiroute's, and APRR's business risk profile in the medium term would not necessarily weaken our view of their stand-alone credit quality or alter the ratings. This is because they have limited concession lifespans, and what drives the ratings is whether they deleverage comfortably and sufficiently ahead of their debt maturing.

The Approval Of Toll-Road Operators' 2024 Tariff Increase Came Before The New Tax's Implementation

Under the terms of their concession contracts, toll road operators should be entitled to compensation for new taxes specific to toll roads, in order to protect the economic and financial equilibrium of their concessions. As we understand that the French government does not intend to compensate toll road operators for the new tax, we expect the affected operators to challenge it in the courts, as some have already announced. Ahead of the new tax's introduction, which still requires a decree of implementation, the regulator approved an average 2.87% tariff increase for the toll road sector in 2024. This was calculated as per the formula in the concession agreements, and based on actual inflation.

The New Tariff For ADP Remains To Be Seen

ADP estimates the portion of the new tax attributable to its regulated revenues, and therefore the portion that it would be able to pass on in its tariffs, at about 75% of its total tax bill. We will see in the coming weeks if ADP's new tariff includes any compensation on this portion. The new tariff starts on April 1, 2024, and is subject to approval by the Transport Regulation Authority. ADP expects the 2024 tariff increase to cover half of the impact from the tax, with further increases compensating for the remaining impact and spread over subsequent tariff periods.

The New Tax Will Test The Flexibility Of Operators' Financial Policies

The amount of the new tax ranges from our estimate of €80 million-€85 million for Abertis Infraestructuras S.A.'s subsidiaries Sanef and Société des autoroutes Paris-Normandie, to €260 million for Vinci S.A.'s subsidiaries ASF and Cofiroute in 2024. (For the indicative impacts, see "Proposed Tax Tests French Infrastructure Regulatory Framework," published Oct. 16, 2023.) The tax will have a greater impact on the operators' credit metrics than the tariff freeze in 2015 or the increase in the "taxe d'aménagement du territoire" approved in 2011.

Operators' financial policies will therefore play an important role in sustaining deleveraging in the longer term, even for those that have ample headroom. Some groups may need to take remedial measures and may face a conflict between supporting the credit quality of their subsidiaries and continuing to distribute large dividends. We will monitor what remedial measures each group takes if it needs to.

Related Research

• Proposed Tax Tests French Infrastructure Regulatory Framework, Oct. 16, 2023
• Indigo Group 'BBB' Ratings Affirmed On Expected Deleveraging After The Parkia Acquisition; Outlook Stable, Oct. 5, 2023
• Societe Nationale SNCF 'AA-/A-1+' Ratings Affirmed On Expected Resilient Metrics; Outlook Remains Negative, June 29, 2023
• APRR S.A., June 15, 2023
• Aeroports de Paris (ADP) 'A' Ratings Affirmed On Improved Credit Metrics Amid Support To GMR; Outlook Negative, June 14, 2023
• Cofiroute S.A., June 13, 2023
• Autoroutes du Sud de la France S.A., June 13, 2023
• Getlink Outlook Revised To Positive From Negative On Lower Leverage Expectations; 'BB-' Ratings Affirmed, April 11, 2023
• France-Based Vinci 'A-' Ratings Affirmed On Solid Rating Headroom; Outlook Stable, March 29, 2023
• Verdun 'BBB-' S&P Underlying Rating Affirmed And Removed From Under Criteria Observation; Outlook Stable, Jan. 25, 2023
• Regulatory Risk: Is There Light At The End Of The Tunnel For French Toll Road Network Operators?, Feb. 4, 2015