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Announcement:

Moody's affirms TUI at B3; outlook changed to positive

Global Credit Research - 24 Feb 2012

Approximately EUR760 million in rated debt instruments affected

London, 24 February 2012 -- Moody's Investors Service has today affirmed the B3 Corporate Family Rating (CFR) and Probability of Default Rating (PDR) of TUI AG; and the unsecured rating and the subordinated ratings at Caa1 and Caa2, respectively. The outlook is changed to positive from stable.

RATINGS RATIONALE

"Today's rating action reflects Moody's view that, over time, both the financial metrics and liquidity profile of TUI AG should be strengthened by the further gradual inflow of proceeds from the company's previous divestment of Hapag-Lloyd, as well as by an eventual initial public offering of that entity," says Richard Morawetz, a Moody's Vice President -- Senior Credit Officer and lead analyst for TUI AG. As agreed with Hapag-Lloyd's other shareholder, the Albert Ballin Consortium, on 14 February 2012, TUI AG will further reduce its shareholding in the shipping company to around 22% from 38.4% as of December 2011. TUI AG's hybrid capital of EUR350 million in Hapag-Lloyd will also be redeemed. These transactions are expected to result in an inflow of EUR700 million to TUI AG by June 2012. TUI AG has indicated that it will use the proceeds to repay debt and potentially to reinvest in the tourism business over time.

In addition, the rating action reflects Moody's view that, over time, TUI AG will monetise its remaining 22% stake in Hapag-Lloyd, either through an initial public offering (IPO) or a sale to third parties, thereby fully divesting its interests in the shipping company. At this time, however, Moody's believes there remains uncertainty as regards the group's structure going forward.

Assuming a full paydown of debt using the EUR700 million in proceeds, TUI AG's gross adjusted leverage would fall to around 6.2x on a pro forma basis from 6.6x as of FYE2011 (to September). Moody's had previously indicated that upward pressure on the rating would occur if the metric were to approach 6.0x. Nevertheless, Moody's notes that September represents a low point for TUI AG's borrowing, which increased in the quarter to December 2011 on account of a seasonal increase in the group's working capital. The rating agency further notes that the first quarter of FY2012 saw a year-on-year decline in TUI AG's earnings as a result of events in North Africa, albeit the group continues to expect a modest growth in its year-on-year underlying earnings in FY2012. However, Moody's has not factored any earnings growth into the positive outlook.

In Moody's view, the receipt of further proceeds from Hapag-Lloyd and its shareholders will enhance TUI AG's liquidity, which the rating agency believes remains adequate beyond a 12-month horizon at the holding company level. The holding company's main maturities are the EUR244 million of notes due December 2012 and EUR430 million of debt relating to exchangeable notes due April 2013. In addition, by redeeming the latter financial debt, TUI AG would increase its legal ownership in TUI Travel by around 12% while its current voting rights would remain unchanged. Moody's liquidity analysis assumes that TUI Travel would not require any liquidity support from TUI AG; TUI Travel's only bonds mature in 2014 and 2017.

The B3 CFR reflects TUI's leading market positions in its core tourism segment, with earnings that have remained quite resilient in spite of operating in a sector that is highly dependent on discretionary spending. The positive outlook reflects Moody's expectation that TUI AG's consolidated group metrics will improve over time. This view is based on the group's plan to use the pending EUR700 million in proceeds from the reduction of its shareholding in Hapag-Lloyd to repay debt at the holding company. In addition, the outlook reflects Moody's view that TUI AG's metrics will further benefit from the eventual sale of the group's remaining stake in Hapag-Lloyd.

WHAT COULD CHANGE THE RATING UP/DOWN

Moody's would consider upgrading TUI AG's rating if the group's gross adjusted leverage were to remain close to 6.0x, with the company retaining significant cash balances to address pending debt maturities. An upgrade would further require that liquidity at the holding company remains solid beyond a 12-month horizon. The outlook would likely be stabilised if group earnings were to deteriorate significantly and gross leverage were to again approach 7.0x, or if liquidity were to weaken. While not currently expected in view of the positive outlook and recent events, the rating could be lowered if there were a significant deterioration in operating performance in TUI AG's core tourism business, or in liquidity.

TUI 's ratings were assigned by evaluating factors that Moody's considers relevant to the credit profile of the issuer, such as the company's (i) business risk and competitive position compared with others within the industry; (ii) capital structure and financial risk; (iii) projected performance over the near to intermediate term; and (iv) management's track record and tolerance for risk. Moody's compared these attributes against other issuers both within and outside TUI's core industry and believes TUI's ratings are comparable to those of other issuers with similar credit risk.

TUI AG, headquartered in Hanover, Germany, is Europe's largest integrated tourism group, and currently retains a stake of around 38% in Hapag-Lloyd, which is a leading provider of container shipping services. In FY2011 (to September), TUI AG reported revenues and underlying EBITA from continuing operations of EUR17.5 billion and EUR600 million, respectively.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following : parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Richard Morawetz
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms TUI at B3; outlook changed to positive
No Related Data.

 

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