Aurizon's wholly owned subsidiary Aurizon Network (Baa1 negative) controls, manages, operates and maintains the largest export coal rail network in Australia -- the Central Queensland Coal Network (CQCN) -- under 99-year lease arrangements with the State of Queensland.
Network contributes around 50% of Aurizon's consolidated earnings before interest and tax.
Network -- which accounts for 50% of Aurizon’s revenue -- enjoys a monopoly position with its operation of the rail system for coal exports in Queensland and, again when compared with the rated coal terminals, enjoys a higher degree of diversity in its customer base in terms of number of counterparties and aggregate creditworthiness.
Moody's expects Aurizon's financial leverage, as measured by FFO/debt, to remain in the low 30% region compared with the rating tolerance level of 30%.
Network's asset base comprises the entire Queensland coal rail network with a current run rate of over 200 million tonnes per annum. This customer base is anchored by high-quality producing metallurgical coal mines operated by investment grade-rated issuers, such as BHP Billiton Limited (A3 negative) and its alliance partners.
Moody's regards Network's regulatory mechanism for socializing lost revenue among its remaining counterparties -- in the event of the early termination of a counterparty contract -- as robust, with shortfalls between actual and regulated revenue recovered in the second year following the shortfall by an adjustment to tariffs.