Transurban Group (TCL) Earnings Call Transcript & Summary

Great. Thank you, and thanks, everyone, for joining us today for an update on Transurban. We're making today's update in response to the changes that we've seen to our business following obviously the outbreak of the COVID-19 virus and then particularly in the last week or so and the impacts going forward. And I hope that wherever you are listening from, and I think we're all obviously getting used to working in -- at home and remote locations, that your family are safe and well. Today's presentation should take about 20 minutes followed by time for questions. I'm joined on the line by our CFO, Adam Watson, who will be available for questions as well; and Tess Palmer, our Head of Investor Relations, who if we -- if your question -- we don't have time to get to your question or you have any follow-up questions, please direct those to Investor Relations, and she'll be able to help. So I hope everyone has seen the materials that have been issued on the platform and on our website. I'm going to go through the presentation and just summarize a couple of slides. So if I could get everyone -- and I can't actually see the slides, but I've got my pack here in front of me, to turn to what is Slide 3 titled Clear Priorities and just talk about where we are in relation to that. So obviously, the situation we find ourselves in as a transport business is quickly evolving, and we're all having to navigate what is a period of great uncertainty. But despite that, I'm very pleased to report that as a Board and as a management team, we are very much aligned. And above all else, we will do everything we can to keep our employees, our contractors and our customers healthy and safe through this challenging period. Our roads are essential infrastructure at this time of the crisis, and we're committed to keeping them fully operational and safe. We have a range of measures in place to support our vulnerable customers, small businesses and other members of the community, including frontline personnel in relation to the health crisis that might require assistance through this crisis. And I'll talk in some detail about that later. Transurban can continue to operate safely and efficiently, with the vast majority of our people working remotely at home, it's about 97%. And we are planning for a wide variety of scenarios that could play out over the next few months. And as well, we're planning for the eventual recovery where we expect to see operating conditions improve for our business and obviously the economy as well. On Slide 4, which is titled Government Responses. One thing we wanted to do because our investors obviously come from quite a few different geographic jurisdictions over the world, is to put it in some context of what's happening in our core markets in relation to government's actions and then therefore the response that we see to the operating performance. So as everyone would be aware, the World Health Organization declared the COVID-19 virus a pandemic, a global pandemic on the 11th of March. And it was around that date that we started to see governments around the world, including in our markets, escalate their responses to combat this virus. From mid-March onwards, we have seen federal and state governments in Australia, the U.S. and Canada all mandate behavior to control the spread of COVID-19. And these response plans being enacted by governments are obviously rapidly evolving to meet the challenges, and we'll continue to obviously monitor those and adhere to those plans. The measures have been varied in timing and degree depending on the jurisdiction. But the overall impact has obviously been to reduce activity, keep people at home and try to manage the spread of the virus. Across all our markets in which we operate, we now see restrictions in place on all nonessential travel, businesses and social gatherings. Schools are either closed or parents are being advised to keep their children at home. Citizens are being urged to stay at home or in some places, in the lockdown, mandated to stay at home obviously to lower the rate of transmission. And these dramatic changes to behavior are obviously having significant impacts on all businesses across the world, and Transurban is obviously not immune. So if I then turn to the next slide, Page 5, in relation to operations and how this has impacted us. I'm pleased to report that on an operating sense, our roads are operational, and we have initiatives in place to ensure that they stay that way under a wide range of possible scenarios. We've established a COVID-19 Emergency Strategy Team chaired by myself, which is meeting almost daily to agree how we operate under these challenging conditions and watching as they evolve. Now here at Transurban, we have been investing in technology for some time to enable flexible working. So we were well placed to have the vast majority of our people working from home. As I said, about 97% of staff are working from home now. We've also put in some very specific risk mitigation strategies in place for our people who need to be on site, one, to keep them safe and also to make sure that we can keep things like our control rooms and incident management services performing to keep our customers safe on the roads. And we are, of course, continuing to undertake all our required preventative maintenance measures on our assets during this time, again, to keep our customers safe. In Montreal in operation, tolls have been suspended on the A25 by the Québec government. And under the partnership agreement, there are compensation provisions for events such as these. And for those of you who know, our revenue is also underpinned by an availability payment. Just a bit of more color in Montreal. Montreal went to a much stronger lockdown. And in Montreal, they closed all what they deemed nonessential services. And in the case of the A25, they deemed that tolling was not essential. The road operation itself is essential, but customer back office and those people involved in the tolling business, they've closed the business, which is consistent right across their whole transport portfolio. So they weren't necessarily targeting toll roads. They were targeting nonessential businesses. And again, in the partnership agreement, there are compensation provisions in particular for these type of events. And moving to Slide 6, and probably one of the most important issues that I want to cover today is the impact on our customers and communities. We are well aware that this is an extremely challenging time for our customers and the communities in which we operate, and we are doing what we can to support all of our stakeholders through this process and crisis. We will continue to fund our $1.2 billion of delivery pipeline over the next 18 months, and that will keep thousands and thousands and thousands of workers employed as we go through this period. We've also been hiring and continue to hire additional resources at Transurban to work through the issues around this environment. But most important, we've been hiring to significantly increase our assistance activities for our customers. And since the outbreak of COVID-19, we've put in extra investments in place to support our vulnerable customers, our small businesses and other members of the community requiring assistance through the crisis. This includes those whose employment has been impacted and frontline personnel who are playing a huge role in helping communities through this crisis. Again, our focus is on dealing directly with those people who've been impacted, who are vulnerable or who have change of circumstances around the crisis. And I'll talk a little bit more about some of the things we're doing and how you can get in contact with Transurban if you need assistance. So some of the initiatives that we currently have underway, and as I said, these are initial initiatives. We'll continue to roll out more initiatives over the next 6 months as the situation evolves, and we can meet the needs of the community. We've been expediting payments to our small business suppliers. So we were paying small business suppliers 30 days. Now we've expedited that to 14 days. And we've extended our Linkt assistance now to business customers as well as our retail customers. We made our first payment this week to our small businesses. So again, we've cut the credit time or the payment time in half for those people. We've been significantly ramping up our key assistance program, which is called Linkt Assist. And again, it's an effort to support people who have been impacted by the crisis who are in financial or social hardship. We've also suspended business activity such as debt collection and infringement referrals in order to provide relief again to both customers and to businesses. And if you find yourself again in any of these situations and you need assistance or change of circumstance, we're trying to help in a very large way. But go through Linkt Assist in order to access that, and we'll do whatever we can to support you. We continue to evaluate our social investment and partnership opportunities, which we've had in the past, and considering where we can apply those, increase those and make the best impact on the community during these times. And we're also committed to working with our government partners and stakeholders to respond to the community and the customer needs, which we know are changing significantly day by day. And again, this is something that we meet on a regular basis to assess. And we'll continue to roll out additional measures over the next 6 months on how we can assess the community. Again, so I want to make it clear. Our business has been significantly impacted by the COVID environment, which we will go through in a minute in relation to traffic and revenue, but we're here to support those customers and people that find themselves in vulnerable positions or changed circumstances such as frontline personnel and other things through this crisis. So please contact through -- us through Linkt Assist so we can support you. Turning now to Slide 7 in relation to the delivery update on our projects. And again, before I actually get into the projects, I want to reiterate that the health and safety of our workforce again is our highest priority. And that workforce extends to our construction and joint venture partners who I have to say are doing an excellent job in very difficult circumstances in managing their workforce and observing all the policies and procedures that need to be done during this time, including social distancing and best practice around making sure that their workers are kept safe. Now at this time, construction is still being considered an essential activity across all of our markets. And work is still progressing on NorthConnex, the M5 in Sydney, FredEx, West Gate and the NEXT Project in Virginia. And we're continuing to plan for the opening of both NorthConnex and the M5 around midyear with substantial progress being made since our last market update in February. And I think when we said midyear before, we said sort of plus or minus 3 months. It's obviously put a bit of pressure on the time, so it's likely to be the plus side of midyear rather than the minus side of midyear, but everyone is still making good progress. And as I said, all the construction sites are open at this time. And I'll have to say, we're really pleased with how the construction industry is -- particularly in the infrastructure sector, is behaving in trying to keep their workforce employed but also safe and healthy. Just wanted to give an update now on Page 8, which is the West Gate Tunnel update in particular because we know that has a lot of attention. Again, we continue to work as hard and diligently as possibly we can to get the West Gate Tunnel project delivered for Victorian motorists. We're continuing to work with the project parties and the EPA to progress the technical solution, which would see one or more disposal sites gaining, planning and EPA approval for safe management of the tunnel spoil. One thing that we did, want to do for our investors I know who have lots of questions around PFAS and what is happening down there is to give an indication of the levels of contamination that we do expect from the drilling and testing from the actual tunnel spoil. And as we have said before, it is low levels of contamination that are expected from the PFAS, and you'll see that graph on this page on the right-hand scale, which shows that the levels of PFAS are expected to be below that of what's considered safe for recreational water activities. That being said, it doesn't really matter what levels of PFAS are in there. We will obviously dispose of the PFAS when we get the solution in accordance with the EPA guidelines, WorkSafe guidelines and planning approvals and do what we need to do to protect the workers and the communities when we find the solution that we're all working to do diligently. In relation to the program, there continues to be significant pressure, and the builder maintains the project's unlikely to be completed by the end of 2022. And again, we've said we see opportunities and we'll continue to do everything we can to try to beat that time frame. However, the program is under review and under more pressure given the current other issues in relation to COVID-19. And we'll have further probably updates in May when we get to Investor Day. That being said, I don't want to lose sight of all the great progress that's still occurring on the project with works continuing on the West Gate Freeway widening and the elevated structure along Footscray Road. And we still have thousands of employees out there every day, working on the project. And again, I applaud them for the work they're doing to maintain the operating procedures during this time and keeping each other safe on the site. And now turning to then Slide 9 in relation to the traffic update. You can see the direct impact that COVID-19 and the government responses to the virus has had on our traffic results. We've decided to be more granular on our traffic data for this update than usual given the material changes which occurred over the month of March. And again, one of the reasons why we've come out with the update is we now -- particularly over the last few days or last week as we moved into shutdown or lockdown in each of our markets, we've been able to determine where we're going and the impact on Transurban. So clearly, in summary, all of our markets have been affected by this sudden reductions in traffic as governments have restricted significant activities. The most material impact can be seen in relation to our North American assets where government actions have effectively locked down activity in Washington much more restrictive than, say, in Australia, in Washington D.C. as well as Montreal. And they commenced on the 12th and 13th of March. And in the U.S., congestion has effectively disappeared from the North American roads, which is impacting in particular our Express Lane assets most heavily. And during the last week of March, the aggregate traffic on our North American assets was down approximately 65%. Here in Australia, the government mandates to date have been less restrictive, which translates into slightly more gradual decline over the third and fourth weeks of March. Interesting, to date, we've seen heavy vehicle traffic hold up relatively well, down only 1% for the month of March across all our markets. And we believe this result is correlated to the increased demand for food, delivered goods and other services now being delivered to people's individual homes as well. Note that if you look at particularly the last week of March on heavy vehicles, where you see New South Wales down by 3%, Queensland down by 4%, you'll note that Victoria shows a much larger number at 11%. That's because the Victoria includes the light commercial vehicle classification in that large vehicle data. If you just go on HCVs or heavy vehicle classification, it's approximately 3% down, in line with New South Wales. So effectively, what we're seeing that last week of March is heavy vehicles down 3% and obviously commercial -- sorry, our retail cars down significantly more given the restrictions. So this has obviously seen the contribution of heavy vehicles rise as a proportion of our revenue from what's been normalized levels of around 1/4 to over 1/3. And while that's interesting and we note that, we don't know what the future holds, and the resilience around the large vehicle deliveries will not necessarily be ongoing. But again, we'll continue to update the market when we can. Just on the Slide 10, a bit more on the traffic update. We prepared for a whole wide variety of scenarios, as I said. And so for the future of forecasting traffic, the truth is the extent and the duration of these impacts to our traffic are clearly out of our control and are directly related to the length of the virus impacts and the various government responses to combat it. One of the things, though, that we're trying to figure out is what could a recovery -- an eventual recovery which will occur look like. So we do see some benefit, and I know there's been a lot of discussion in some of the analyst reports looking at the Bloomberg data in relation to what's happened in China. It clearly shows traffic congestion building week-on-week since February when they started to ease some of the restriction. But I want to point out that the congestion is not directly proportional to traffic volumes. So for instance, congestion might drop by 80%, but this might translate into traffic volumes dropping by 30% to 40%. Again, so these types of charts tend to overstate the actual volume impacts. But what it is useful to observe is that once the restrictions were lifted in China, we started to see changes in behavior quite quickly, much quicker on the roads than in public transport. Now in other parts of the world that are feeling the worst impact of the virus, like Italy, France, Spain and Germany, we notice and we watch as our peers continue to see reductions in traffic week-on-week. Now let's move on to Transurban's capital update on Slide 11, which is something I know community is very interested in. And I want to take this opportunity to assure you that Transurban has a strong balance sheet with sufficient liquidity to fund our capital requirements and our debt refinancing obligations until actually past 30 June 2021. We can go beyond that time frame with the cash and undrawn debt facilities we have on hand today. This is before our operating free cash flow, which could be made available to fund distributions or it could be used for other purposes. So even if Adam and the team are unable to access the debt markets between now and 15 months' time, we can still meet all of our obligations. And again, this enables us to continue with our construction projects, which are employing thousands and thousands of workers, continue to do our operations and importantly, provide our customers with financial and other assistance as they move through our challenging times and then, coming out the other side, provide our communities with strong transport infrastructure for the future. We also remain committed to maintaining our strong investment-grade credit ratings and are working proactively with the rating agencies. And we are confident we can protect them despite the current volatility. And these ratings provide us with access to the global debt capital markets, ensuring that we can continue to grow and fund new opportunities. On Slide 12, in relation to the distribution, given the uncertainty in the trading outlook and the timing, primarily with regard against the extent and the duration of the impacts to the traffic results, the Board has decided to withdraw the existing distribution guidance for the second half of this financial year, second half '20, which was previously $0.31 per securityholder. Instead, at this point, we expect that the distributions paid in the second half of this year will be made in line with the free cash excluding any capital releases that are made during this period. And we've just highlighted again our definition on this page to make sure everyone is aware of our definition. And again, any questions, please contact Investor Relations. Transurban's Board believes this is a prudent decision and it best positions our company to withstand the impacts of this crisis, again, assist our customers during this challenging period and prepare us to come out the other side to support the eventual economic recovery that will occur. Turning to Slide 13. Just a second, I'll get my slides ready. Again, I said a minute earlier that if we -- a few minutes earlier that if we can't access the debt markets, that we do have sufficient liquidity to meet our debt and CapEx obligations. Nonetheless and very pleasingly, last week, we raised $850 million of long-term debt in the Asian loan market against the M2 asset. Pleasingly, over the last week, we've raised a further $1.3 billion in new working capital facilities, which can be used for general corporate purposes, which puts us in a strong position whilst we wait for the global debt capital markets to stabilize. And just on that, we have -- the debt markets have been volatile. But we've seen the euro market, the 144A market and other markets, while volatile, still doing substantial issuance. So we don't see the markets at this time freezing. And again, we'll be prudent in how we go forward. But we believe over time, we will continue to access the markets. And as you can see, the team has done a great job in diversifying our portfolio across the different jurisdictions where we might access capital as well as extending the duration over that period. But again, we believe that the ability to raise our money last week in relation to the M2 and raise the additional working capital facilities last week shows that even in the uncertain market, our debt investors are confident in our asset base over the long term. Just a few closing comments before I take questions. Again, we are very clear and focused on our priorities at this time, and we're prepared to do whatever we can to protect the health and well-being of our people, our customers and our joint venture contracting partners. And our roads are an essential link in the logistics supply chain at the time of crisis, and we understand that responsibility to keep the roads operational and performing. And we've put in significant measures to support our customers and communities through this crisis, and we'll continue to evaluate and do more as we move through this process. And we will stay flexible to the rapidly evolving situation in each of our markets, but we're well-placed to continue operations even if further restrictions on movements are mandated. And we are in a strong capital position with sufficient liquidity to fund our requirements and our debt refinancings to at least to go past the end of financial year 2021. I want to share to shareholders that we've not taken the decision to withdraw our existing distributions guidance lightly, but we believe that reducing the amount paid in the second half to underlying free cash flow best positions Transurban during this time of uncertainty and will allow us to come out the other side in a strong position to support, again, our customers and communities as we work through a recovery situation. I want to now, before I hand over, to thank the team at Transurban, who have pulled together and done an amazing job over this last month in particular, and to all our stakeholders and credit and securityholders who continue to support us. And now I will open the line for Adam and I to take questions. Thank you.

[Operator Instructions] Your first question today comes from Rob Koh with MS.

On a personal note, just very pleased to hear that you all are working well over there at Transurban. If I can start with a question about liquidity, I note that the liquidity ratio looks at about 1.2. And I just wonder if in your scenario planning, and you're looking to increase that further in these trying times, either by, say, more undrawn debt, more CapEx resequencing or equity?

Yes. Thanks, Rob. Look, I'll make an overall comment, and then I'll ask Adam to make a comment. So we have offers and options on further liquidity, Rob. We'll continue to assess the situation. As I said, the markets are not -- and the debt markets are not closed for -- necessarily for refinancings, and we'll continue to assess those situations. So it is a balance on timing. And as I said before, we still have the operating free cash flow going through the system of Transurban, although obviously greatly reduced in the current situation with the traffic. But -- so it's something that we are constantly assessing and we have further options. We're comfortable obviously with the position that we're currently in. But Adam, I might get you to make further comments.

Thanks, Scott. And however look, we've always taken a very prudent position as it relates to liquidity. You know that we've always held either a lot of cash or undrawn debt on hand, and that's always been to ensure that we can withstand volatility. And obviously, what we're seeing in the market generally at the moment is unprecedented. But again, we feel as though that our prudent capital approach has been working well for us for a long time, and we don't intend to change that, such as the working capital facility, which Scott just mentioned that we've raised this week, is really just to ensure that we've got sufficient liquidity to make sure that we can meet not only our debt refinancing obligations but very importantly, our CapEx commitments. As Scott said, we feel it's very important that we keep our construction projects going, had a lot of support from our lenders on the basis that they know that we're critical to keep these projects going and employing thousands of jobs not only in our existing business but in those construction projects. So we don't see that changing as markets continue to stabilize. And as Scott said, the Eurobond markets, the 144A markets seem to be performing quite well at the moment. If there's opportunities to continue to refinance or raise additional debt or liquidity through those markets, then we will continue to pursue those as we ordinarily would.

I think, Rob, also I was the CFO during the GFC. And while Adam said it's unprecedented times in relation to we're dealing with the health crisis first obviously and an economic crisis second, the issue around liquidity or access to capital in the debt markets, and that can always change. So I'm not trying to suggest that on the oracle or something like that, but it does feel different. And at this point, we're seeing tremendous support from our credit providers and others in relation to being able to access capital. And as Adam said, the markets are open at different times, though volatile, so it does feel different in that sense. It could change obviously in any moment, and we're clearly aware of that. And that's why we've got enough liquidity to take us for well over a year. But it does feel a little bit different in that regard.

Yes. So just on the undrawn debt, I know that you've got $2.9 billion of undrawn. Does that include the new $1.3 billion of working capital? And then as a side question, can you comment on the conditionality of drawdown on any of those facilities? Is it just a straight drawdown notice?

Okay. You want to go, Adam?

Yes, sure. And so you're right, the $2.9 billion, it includes the $1.3 billion that we've just raised. You would have seen at 31 December, we had undrawn debt at the corporate level of $1.6 billion. Those facilities were put in place in part and certainly largely to fund our construction commitments. You'll recall that we set up the $1.6 billion a while ago principally to support the construction of the West Gate Tunnel project and our other construction commitments. But they are facilities that are available for general corporate purposes, so they are accessible for effectively anything. But again, principally, the focus for us is to make sure that we've got that capital available to fund our construction commitments and debt refinancing obligation.

Okay. Cool. First, I'll ask you some operational questions and give Scott a chance to talk. But I guess the M4 traffic is one that we'd be closely watching particularly because there's $2 billion of debt to be refinanced there in FY '22. Can you maybe just talk to traffic specifically for that one and what kind of refinancing contingency plans you might be looking at?

Yes. So yes, Rob, I mean it's -- again, it's not until 2022. So traffic in line with the M4 is consistent with the rest of New South Wales. And again, the refinancing is a long time away. So at this point in time, we're looking at what measures and obviously planning for what would occur. But again, being almost 2 years away, while we have to plan for it, we hope that there's some level of recovery by that point in time. So we're watching it. It had a strong -- very strong start. As I said, the road recently opened better than forecast. Obviously, this has not been planned. But we expect, when the economy starts to recover, that we'll see some strong recovery there as well. I'm not sure what that time would be, but I think, Rob, as you said, it's quite a fair way away. We have strong support from our existing debt financiers in those facilities. So I can't speak for what we need to do at that point in time. But given that we certainly expect to cover the interest bill and other financing arrangements, we'd expect to be able to, if not refinance, continue on with the existing facilities and putting new facilities. But it's such a far way away, Rob, but we'll plan for all those different scenarios.

Yes, okay. Yes. And to be clear, I'm also hopeful the recovery is well before then. So last question for me, is there any color you can share on the prices that you've been seeing in the last couple of weeks on the Virginian toll roads?

Look, we did a trading update. We'll come through -- obviously, you saw the April announcement across much more detail, which is the normal quarterly results. But as you can imagine, the revenue has been impacted more than the traffic, so -- because of the congestion in the general-purpose lanes. So all I can say is while the traffic may be down, the revenue is down further than the traffic. But we'll have the -- more to tell you on the 16th of April.

Your next question comes from Simon Mitchell with UBS.

Just a question on Slide 9. Appreciate things are rapidly evolving. The rates you described for traffic declines in week 4, can you give us some idea of the exit run rates at the end of that week versus the week total? I mean are they materially different to the week you made?

So I think what I can do is give you the -- so I've got yesterday's -- what's today? It was today, Wednesday. We seem to be living in dog years in some of these days. If -- yes, we saw the traffic on -- roughly on Monday, and I haven't got all the traffic yet for Tuesday, but we've seen that sort of in that -- depending on the area, somewhere between that 30% and 40% range. So it's probably moving more to the 35% to 40% range, which is more what we saw toward the end of the week and what we've seen on Monday and Tuesday. So the 4 sort of shutdowns across the states didn't really come into effect until sort of Tuesday of last week. So I think you're talking again -- at this time, we're seeing somewhere between 30% and 40%, but more like move to 35% to 40%, which is what we saw at the end of the week.

Yes, okay. And just given the concessions we're seeing from a number of large corporates in Australia to do their bit to help out in the economy, have you been having discussions with government regarding toll relief? And what is your position on that if you are convinced to give some kind of relief?

Yes. Well, obviously, again, I said in Montreal, it's under the contract that they could suspend the tolls, which is what they've done, and then there's compensation under that. Look, we're always happy to have conversations with the government. We need to make sure that we -- in the time of crisis, there are lots of different stakeholders that have to be managed. On one side, we want to keep thousands of people employed on construction jobs. We need to keep our operations functioning, incident management functioning. We need to make sure our roads are open and continue to invest. Given that our traffic is down 30% to 40%, we've obviously been severely impacted as well. But again, happy to have discussions with the government. The way we are trying to approach it and we'll continue to do things is there are a lot of, obviously, people now who've been unemployed, vulnerable or in difficult situations because working from home or social situations or again, frontline personnel, whether you be health workers or other people that are having to deal with this crisis on the frontline who might be in very changed circumstances where they weren't having to use toll roads before or they might be in financial duress or whatever. The best way we believe we can help those people is through our Linkt Assist program, again, which we're ramping up dramatically, again, suspending of debt activity, debt enforcement activities. And -- so that we can help directly those people who need support and who need substantial help rather than just a blanket reduced tolls by 5%. We think it's more important that we dedicate significant resources to helping those people in the most need, and that's why we encourage everyone. And if the media is on the call, we encourage everyone to contact Linkt Assist, and we continue to ramp up our activities there so that we can help and support community in that way. We have had discussion with a lot of our government partners about the best way to approach this. And again, it's obviously a fine balancing act from keeping thousands of people employed, multiple thousands -- or if you look at all across our jobs, tens of thousands of people employed on one side and maintaining Transurban so that we come out the other side to help support the economy and the things that we need to be done there. At the same time, maintaining financial strength so we can support those who are vulnerable customers or on frontline personnel. So that's our approach at this point in time, and we think that's the right approach. And I can say that we've had 2 days of Board meetings and that was the most discussed topic. And a lot of passion, a lot of empathy around the table for everyone's situation, whether you're looking at employment, whether you're looking at hardship, whether you're looking at the company side of it from our security holders or credit providers. It's a very difficult situation for all of us, and we will make mistakes. We will continue to adjust our position as this develops. Again, 1 month ago, so less than a month ago, our traffic has seen no impact. In fact, we had growth in heavy commercial vehicles. So it is an incredibly fast and evolving situation. We're here to have conversations, which we do every day, with our government partners about -- particularly around operations and what we can do to make sure that our roads are safe and operationally functioning to make sure the logistics chains continue to operate efficiently. But again, noting that our traffic is down, as I said, 30% to 40%. And if you look at the congestion on alternative roads, there's not much. So again, there are alternatives. But that being said, we are obviously trying to approach our -- directly to our customers and small businesses and keep people employed, which seems to be resonating with our government clients at this point in time.

Okay. And just one last question for me. In the scenario of a protracted lockdown, so let's say something like 6 months, how are you thinking about covenants or some of the capital structures where there's less headroom? So are they of the likes of Transurban Queensland, WestConnex, A25, et cetera? And I guess, have you applied for covenant waivers just to be prudent on some of those tighter capital structures?

All right. Well, I'll make some, again, general comments. I'll get Adam to make some specific comments. I think, first of all, we're planning for a whole range of scenarios. Significant lockdown for a significant period of time, slow recovery, fast recovery, whatever it may be. We're going through as any good, I think, corporate would do and doing risk management on all kinds of scenarios, how we operate our assets actually remotely from a control room, so all those scenarios. So I can assure you that people at Transurban are incredibly busy looking at all the different scenarios and planning for what we believe could be all the eventual outcomes. Again, that is a potential scenario now. I don't want to speculate on which one is the likely outcome, but we have looked at those scenarios. I think it's important to note, and Adam will talk into detail about that, that our covenants are 12-month trailing covenants. So we've got a significant period of time before the impact of this starts flowing through the covenant trail. We have significant remedies that are allowed under our different financings to rectify issues around covenants, whether they be a lockup of distributions or eventually, if you were to get into a potential default situation, there are remedies in the different packages. And again, this won't occur for quite some time, which you'd hope you'd be, if it does go to the situation, you started coming out, you can see the other side. So -- and we have a lot of partners and capital partners and others we worked through a long time that have, again, I think, a lot of trust and see value in the long-term financial strength of Transurban when you think that we just raised well over $2.3 billion in the last couple of weeks to the long-term survival and strength of Transurban. So we're looking at those scenarios, Simon. We are not asking for covenant relief or any sort of relief at this point in time because we don't need it. And -- but it's something that, obviously, we're planning for every scenario and then working with the rating agencies as well because, obviously, seeing their view of what's likely to happen when we come out of it. And the rating agencies, again, tend to look through events, short or medium-term events, to what an eventual potential recovery might be and what corporates have at their disposal to manage their way through this. But again, Adam, I don't know if you want to provide any more details.

Yes. Thanks, Scott. And thanks for the question, Simon. Look, I can't get into detail, particularly asset by asset, which I know you're not asking, but I can't get into detail around the covenant arrangements with each of the assets because they're private and confidential with the lenders. But what I'll just do is maybe just add a little bit to what Scott said generally. So one is that these assets and the corporate group are all structured to be investment-grade. So they've all got strong fundamental credit metrics that support the business. Some of the newer assets that are in ramp-up are structured in a project finance type arrangement, which is meant to take into account volatility. And yes, they do have covenants in place. But the way that they work practically with the lenders is that you have trough periods. In fact, all of our covenants have trough periods. So none of them have an automatic default mechanism. Because the intention with all of these transactions is to ensure that we have a way to be able to work through them given the business that we're in should have long-term fundamental positive cash flow coming through. So there's -- in the event that you were to get into that space, and as Scott said, we run scenarios but we're not at that space. But in the event we were to get in that space, then obviously, there's a lot of work that we can do to ensure that we have the necessary cures in place. I think you should also know -- and again, I can't get into detail. But with the majority of our assets, we do have levers in place. We have interest that can be capitalized. You take some of the North American facilities in place, which is publicly available. You had things like interest being able to be capitalized. You have compensation arrangements, for example, as Scott mentioned, on the A25. So there are a lot of levers that we have in play. But what's really important for us and for the lenders is the liquidity position. So it's one thing to get into a scenario where you're getting close to covenants. The most important issue is to ensure that we've got sufficient liquidity in place to be able to keep the operations going and to be able to get top refinancing obligations, and that's what we've addressed. And that's what we believe will put us in a very strong position should things continue to deteriorate.

The next question comes from Ian Myles with Macquarie Equity.

[indiscernible] covenant [indiscernible] can you maybe [indiscernible] to the liquidity $1.2 billion [indiscernible]

Sorry, Ian, I can't hear you -- sorry, Ian, I can't hear you. I don't know. Adam, can you hear Ian?

No, I couldn't hear him either. Sorry.

Sorry, Ian, you're breaking up. Do you want to try again?

Can you hear me?

Try again.

Can you hear me?

That's a little bit better.

Can you hear me? Can you [indiscernible] liquidity versus going for a larger [indiscernible]

Sorry, Ian, we can't hear you. Ian, do you want to text me your -- do you want to text me your question or e-mail me your question and then I can answer? Or you can just -- or try and dial back in, sorry.

This is the operator, Ian if you wanted to try dialing in on a different line, while you do that we will go through to the next question. Your next question comes from Owen Birrell with Goldman Sachs.

Hopefully my line's a bit clearer. Can you hear me?

Yes, we can hear you. Thanks.

Excellent. I just have a couple of questions. In terms of the, I guess, how far the deterioration in volumes would go. We looked at some of the offshore examples and we're seeing, say, 60% to 80% down in light vehicle traffic and say, 20% to 30% down in heavy vehicle traffic. I'm just wondering, is -- other than the different stages of lockdown, is anything structurally different about, say, the Australian markets that would suggest that we won't go to that level of deterioration, full lockdown scenario?

Owen, it's very hard to speculate and again, define lockdown. So you've got lockdown in places like Italy, where 0 manufacturing. Basically, there is no, what's called, essential work or whatever. So all construction sites are shut. So it's very difficult because it's really driven by the government measures. And so it's very difficult for us to speculate. I guess, again, as I said and Adam said, we're planning for all scenarios. We are not health experts. And obviously, it's a health crisis first and government needs to do what it should be doing. I mean, we're -- I guess, we watch the news and pleased to see some of the rates slowing in Australia. I don't know what that means longer term, but -- of infection. But I mean, it'll just be speculative. What we're saying is we're planning for all those scenarios. I think most importantly is -- not most importantly. One of the important issues is whether you get to 40% down, 50% down, 30% down, 70%, 80% down is then the assumption on the timing coming out the other side and then looking at some of the markets that have started to recover, such as China. And they will start looking soon in South Korea and other places to see how the volumes start returning back to the market. So it would be -- for us to speculate on how bad and how good it is, it just would be irresponsible at this time, I think.

That's fine. Can I ask on the U.S. market, you talked about congestion turning 0 on the public side roads. Should that suggest that, I guess, the express lane traffic should go to 0 as well? I mean is there anybody -- why would people still be driving on the express lanes? You've -- they have...

Yes. Well, it's interesting. And we made this discussion before. I mean there are certain exits that people might have to go around longer. We have different exits in some of the free lanes, so certain access points might be more convenient with the express lanes. We made this observation before. So even at, say, 3 A.M. in the morning when there is no -- when there was congestion, but even, say, at 3 A.M. in the morning, when there was no congestion in the free lanes, people would choose to use the express lanes because it's a better ride, they feel like they're being watched, they feel like it's safer. Obviously, the average toll has significantly seemed to have reduced. And that's why I was saying, even though traffic is down dramatically, the revenue is down even further because of the -- around the dynamic pricing, which is to be expected. And at some point, it will come back. But yes, people still use it for different reasons, for their safety, convenience or whatever it may be. But yes, we're still seeing some use of the roads. But yes, the GP lanes, the general purpose lanes, are fairly uncongested. We still see more use on the 95 than we do on the 495.

Okay. And just taking the U.S., I'm just wondering if there's -- if the Maryland process has been put on hold at this point?

The answer is no. It's not been put on hold. I think there might be some -- I think the latest when I was speaking to Jim yesterday was there might be some delay, but it's not been put on hold. And I think that's the other thing for us, is to keep our eyes on that. When, hopefully, we all come out of this -- the other side, Transurban wants to be in a position that we can help continue to support our governments and clients and the community as we go through, hopefully, an economic recovery, which I mentioned infrastructure will play a role, whether it be the Maryland express lanes, whether it be Western Harbour Tunnel or other things that governments might want to do. And again, Maryland express lanes, the actual timing of capital and construction, as we said in the half year results, is a fair way away, but the process at this point is continuing. And again, we continue on with all our construction projects in the Virginia market, as I outlined in the update. And I think it's important for government -- again, whether it's Western Harbour Tunnel or Sydney Gateway or the M12, whatever projects, while the Transurban is involved or not, it's not an issue necessarily about Transurban. But I think it's important that the governments continue on planning for getting the environmental approvals, progressing those projects. And sure, you may not be able to initiate those projects in the next few months or 6 months or whatever they're planning to do, but as we know, these projects take a very long time to get to a point of construction that generates a lot of economic activity. So I think it's very important that governments continue to progress these projects so that we do get in the position to bring the workforces back, and we need an economic recovery that we have potential projects to invest in on the other side, whatever the timing of that might be.

And then just one final question for me. The operating costs of the business. Have you started to put into play any cost mitigation strategies to accommodate the falling revenue line?

Yes. Well, as you know, some of our revenues, some of our costs are directly related to revenue. So our transaction costs or other things that directly relate to the amount of revenue, so there'll be some bit of a savings there. I guess our attitude -- and this comes back to managing stakeholders and the things that we think are important and for our staff. At this point, sure, we're managing discretionary cost and doing everything we can, as we've always done, to manage our cost line. And we'll continue to do that through this crisis. But we also think it's important that we're actually hiring people. So our cost on that side will increase around the customer, being able to, again, increase Linkt Assist. So our cost will increase around assistance we're providing to our customers. The way we're managing our construction workforce or our JV partners because of the different operating procedures that are required, some additional cost there. So yes, we're managing a lot. But we think most importantly is that we make sure -- and operating remotely has its own challenges as well from a cost line and making sure that we have the right procedures for our control room operators and alternate sites and other things. So cost is very important. I'm not going to say it's not, but that -- our main thing is to make sure our people are safe, that we are able to help our customers. And that we retain that key workforce that's going to be required to come out the other side and make sure that, again, we can support our customers and communities as we come to the eventual recovery. So that really is, again, our priority at this point in time. So the answer is there's not a lot. Sorry, the answer is there's not a lot we're going to do on the cost line in the short term because we don't think that's really prudent for our stakeholders, our employees and what needs to be done in this environment as well, whereas every job is obviously incredibly important to the community as well.

Your next question comes from Nira Sonah with Evans & Partners. We will go to the next question. The next question comes from Ben Brayshaw with JPMorgan.

Just a question perhaps to Adam. I was wondering, Adam, if you could comment please on serviceability for rating agency purposes just in relation to the lower Australian dollar. I suppose I'm just interested as to whether there was a translation effect when foreign-denominated debt is converted back to Australian dollars or whether that's covered through the capital hedging, please?

Look, the way to answer that -- the question is that the rating agency obviously allows for fluctuations, whether it be short-term impacts on cash flow, whether it be fluctuation in the exchange rates. And even that -- whilst meaningful, it's -- the U.S.-denominated debt on our balance sheet as a proportion of the group is still quite small. The rating agencies will typically look through that. We obviously monitor it very closely. And as you would expect, we shared the data and we've provided the data to be able to ensure that they can do the appropriate calculations and model those calculations. But the way that we believe that they will approach these times generally, putting aside some of the things around exchange rates and so forth, is that they need to look through the short-term impacts. And we've seen what they've done globally. We've seen what they've done in other sectors in terms of the commentary. And the commentary keeps coming back to, again, the focus on liquidity and the second one being a focus on -- to the business model and how the credit metrics can improve over time in so far that if organizations were to have temporary dips below the credit metric threshold, that, that wouldn't be there for a sustained period of time, that there's a pathway to move through that.

Just before we do the next question, we got Ian's question by text. He's in a mobile phone black spot. So his question was, why only the $1.2 billion liquidity and not more given uncertainty over the timing of the recovery? I assume that's what he meant. Also when is contractual delivery date on the M5 tunnel and are LDs starting to be paid? I'll do the second question first, and then Adam, you can talk about, again, what's on liquidity and the other things that we expect over time and again, options to the group. We're comfortable, obviously, where we are. In relation to the M5 tunnel, I think, as you know, there was arrangements put in place around claims that were made in the M5 previously in relation to issues before Transurban came into play that changed the delivery date, and that was all factored into our investment. And those claims are paid by the state in relation to environmental approvals and other things that had been done. That was done some time ago. So depending on the timing of the M5 tunnel, it may be past the contractual date. I'm not sure that date actually has been made officially public. So Ian, at this time, I'm not going to say. But however, if the contractor goes past that date, then yes, LDs would be paid. LDs are not being paid now and the contractual date is some months away. So -- but yes. But under that scenario and the NorthConnex scenario, LDs are expected to be paid. Adam, do you want to comment about the liquidity again?

Yes, sure. Again, we try to size the liquidity to ensure that we've got what we think is a long period of time. We wanted to ensure that we've got the appropriate liquidity there to fund our capital requirements and our debt refinancing obligations. So again, as Scott mentioned, we can go beyond June 2021. The next, we've highlighted on Slide 13, the near-term refinancing obligations after that, you can see them in our maturity power charts in our other investor presentations. The next sort of refinancing obligations is not until around September '21, so around 18 months from now. We already have programs in place to progress those, and we will continue to progress those over the coming months. And again, as we put in the document and as Scott mentioned before, the capital markets also remain of interest to us, as they always do. The markets are open. We're seeing a lot of trades in that sector. We're seeing a lot of trades in the ratings space that we're at, which gives us comfort that our commitment to our ratings is appropriate and should serve us well in the longer term. And we think that that's the most prudent way to manage the balance sheet.

Your next question comes from Anthony Moulder with Jefferies.

Just a quick question around the capital releases that were expected this half. I appreciate that they're not going to be included in the distributions for this half. But of the releases that were due, the $125 million, have you received those from the assets?

Adam, do you want to take that question?

No, we're working through those at the moment. We don't have to trigger those. None of those were, as we said at the time, were things that we had to trigger. They're with shareholders, so we're working with those now. What we've made clear is that we're not reliant on those capital releases should they not be paid. If they are paid, then that's fine. But we're not relying on those.

I appreciate that's the case for this year. But I guess trying to look forward, has there been any change in the willingness of the Board, I think, to look for those capital releases from assets going forward as well?

I think, Anthony, again, Transurban only gives forward guidance in August. I don't know if any companies will be giving forward guidance much any more in this current situation for a period of time. But it will be up to the Board's decision. I think, again, that's just something that will be assessed in the future. The Board's made the decision about the second half, and we'll have to see where we are in the next environment. Clearly, it depends again on the recovery and timing and what's happening, something that's a lot of speculation. I guess what Adam is saying is we're not relying on that. But too early to make these kind of speculations, I think.

[Operator Instructions] Your next question comes from James Nevin with RBC.

Just had one just really quick question on liquidity as well. I'm just trying to understand the -- sort of the M2 debt, the $815 million of nonrecourse debt. And then is that included in the table on your Slide 11? Is that $800 million included in the table, so it is like nonrecourse undrawn debt of like $0.2 billion? And just is that included there or is it separate?

Adam, go ahead.

Yes, James. So no, it's not included there. So another way to put it, just to be crystal clear, is that if we hadn't done that refinancing, then that nonrecourse proportional number would have been not $0.2 billion. It would would've been $800 million higher than that. So no, it's not included in that table on the basis of we've achieved contractual close.

Your next question comes from Nathan Lead with Morgans Financial.

Just 3 quick ones for me. First, can you remind us what the downgrade trigger is on the FFO to debt for the rating from the BBB+ going to BBB?

It's not that -- it's not a black and white. But Adam, do you want to talk about again how the rating agencies are talking about this current environment?

Yes. Exactly, Scott. It's not an automatic trigger. They sort of put target thresholds out there. Often, they don't quote those target thresholds, but they basically say that if there was a material degradation in your credit metrics sort of sustained -- and the most important word there is a sustained period of time, then that could trigger a rating downgrade. So again, that is meant to accommodate for any short-term issues that may arise. And obviously, such an event as this, which could put a short-term impact on the credit metrics, wouldn't automatically trigger a downgrade. As we've said in the report, there's always an option for an agency to consider a negative outlook or negative watch, but that is not a downgrade.

Okay. Second question, too, just in terms of that free cash flow calculation. And I'll get into the detail here. But obviously, you've taken the capital releases out of it. What are you thinking in terms of the M5 debt amortization, that sort of $40 million? I suppose it's kind of akin to a capital release. Is that still going to be getting added back?

Adam?

Yes. We don't propose to make any change to the free cash definition. What we were very clear about is that we didn't want to include the capital releases here. Again, you'll recall that the reason why we did the M5 was on the basis that we're effectively amortizing the debt of an asset that in, what is it, 6-year time now reverts to WestConnex, which we already own as well. And then there's a capacity to put additional debt against that -- what will be an unencumbered asset at that point in time. So we didn't propose to change that. Obviously, in the near term, we will always focus on making sure that we've got sufficient cash to fund the distribution, which, hopefully, has been made clear through the guidance that is out there. But at this stage, no, there is no change to the definition.

Okay. And just one final one for me. Scott, just I know it's early days with the impacts coming through on the traffic. But do you think there's any sort of permanent changes that could come through in terms of traffic, particularly on the passenger vehicles, just from, I suppose, this enforced working from home and people becoming a lot more efficient with using technology from home? Do you see there is a risk that you could have a permanent shift down in at least passenger vehicles?

Look, when we look at our different scenario analysis over time or different -- looking at strategies, trends, and we assess long-term impacts of different things or the Internet of Things or working from home or demographics or cabs or whatever, we think of these things. Obviously, this is accelerating a lot of different things. So the answer is, sure. I think it will, in some areas, change the way we work for a manufacturer or supply chains or other things. And that, on one side, could have a detrimental impact on Transurban. On the other side, it may also change the way things are delivered at home and logistics and the use of roads. Obviously, public transport for a while might not be considered the best option. It depends on how we come through at the other side. So there's a whole lot of variables. And yes, they will have potentially impacts, both positives and negatives. What we still believe is the long-term trends around demographics, mobility as a service and the eventual strength of the economy of these major urban areas will keep Transurban in a good position long term. But we'll continue to assess the impacts on the other side, both positive and negative from our perspective.

There are no further questions at this time. I'll now hand back to Scott for closing remarks.

Great. Thanks, Lucy. And look, thanks, everyone, for your attendance and participation, your support. It's a very difficult time not just obviously for us at Transurban and for our customers and our clients, but also for the whole industry, for you as well. We recognize that. We try our best to feed you the information through the right disclosure channels that we can. Obviously, we've got our traffic release the middle of April for the quarter. We're still planning on having a virtual Investor Day in May if we don't update the market and other things going forward. I appreciate your feedback on the trading update and things that we're doing. And again, we are trying to balance a very difficult environment, the combination of the impacts that we're seeing on our business, how we keep thousands of people employed, how we protect the vulnerable customers and the front line personnel and providing substantial assistance, and we'll continue to evolve that as we get through this. It is -- while from a credit perspective and others, we're in a very good position and it is very different from the GFC, it is very different, unprecedented in relation to health and economic crisis. And we'll continue to do our best. And again, I really want to thank, again, the Transurban team who've really pulled together to do everything they can to support all of our stakeholders during this process. Again, thank you for your attendance. If you have any follow-up questions, speak to Tess Palmer. And I hope at some point, and maybe it's August, maybe September, we can actually have a face-to-face meeting, although I'm sure we won't be shaking hands. At some point, we can see you again face-to-face. So thank you for your attendance, and keep safe.