Stockholm, July 06, 2020 -- Moody's Investors Service (Moody's) has today confirmed the B2 corporate
family rating (CFR) and the B2-PD probability of default rating
(PDR) of CMA CGM S.A. ("CMA"), as well
as the Caa1 senior unsecured rating. The outlook on all ratings
changed to negative from ratings under review.
A full list of debt can be found in the end of the press release.
This rating action concludes the review for downgrade process, which
was initiated on April 1, 2020.
Today's rating action balances the improved liquidity of CMA following
the signing of €1.05 billion new Term Loan, of which
70% is guaranteed by the Government of France (Aa2 Stable),
with the risks attached to the threat of a second wave of the pandemic
endangering fragile transportation demand. Still, positive
signs are emerging following unprecedented capacity adjustments by the
CMA as well as the industry, keeping freight rates above last year's
levels despite a significant decrease in the bunker price. Should
the shipping industry continue its robust performance trend despite a
fragile macroeconomic environment, reflected in adequate profitability
and credit metrics, a stabilisation of the rating outlook is possible.
The rapid spread of the coronavirus outbreak, deteriorating global
economic outlook, low oil prices and high asset price volatility
have created an unprecedented credit shock across a range of sectors and
regions. We regard the coronavirus outbreak as a social risk under
our ESG framework, given the substantial implications for public
health and safety.
RATINGS RATIONALE
On May 13, 2020, CMA signed a new senior unsecured Term Loan
of €1.05 billion ($1.15 billion) with a consortium
of banks, of which 70% is guaranteed by the Government of
France. The loan will be pari passu with the existing senior unsecured
revolving credit facilities and senior unsecured bonds. It was
subsequently drawn on May 19, 2020, of which €200 million
was used to prepay the €725 million senior unsecured bond maturing
in January 2021, and €300 million injected as equity into CEVA
Logistics AG (Caa1 Stable). Moody's understands the remainder,
around €550 million, will be used to cover short term debt
maturities as well as absorbing any COVID-19 related impact on
the business. The initiative is a clear credit positive,
as it will alleviate short term pressure on the company's liquidity,
one of the main drivers to placing the ratings under review for a downgrade.
Although the industry has demonstrated very disciplined behaviour so far
in terms of adjusting capacity to the decreased demand, medium term
prospects remain uncertain, especially factoring in the looming
threat of a second wave of the pandemic. Even though freight rates
have remained stable since the coronavirus outbreak, there is a
risk they will react to the record low bunker price, due to the
usual time lag. Should this materialize, 2020 could prove
difficult for the company as well as the industry. Should stable
freight rates, however, be sustained over the next couple
of quarters, Moody's expects CMA to be able to generate positive
Moody's-adjusted free cash flow, yielding optionality
when it comes to adjusting its capital structure.
Moody's understands that CEVA's need for additional liquidity
support has been reduced, supported by the €300 million debt
repayment with proceeds from CMA's latest equity injection and considering
its cash position per end of Q1. A longer-term improvement
of CEVA's credit quality requires a sustained turnaround of free
cash flow generation to positive levels.
RATIONALE FOR THE NEGATIVE OUTLOOK
The negative outlook balances the current negative industry outlook Moody's
has on the container shipping segment, with CMA's credit positive
initiatives to improve the liquidity profile. Depending on how
the market environment develops, with main drivers being the evolution
of freight rates, Moody's 12-18 month forward view
encapsulates quite a wide band when it comes to credit metric projections;
debt/EBITDA between 4.8x -- 5.6x and FFO interest coverage
between 2.6x -- 3.2x. Also impacting these projections
is the company's financial policy when it comes to refinancing vs
retiring debt coming due.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A stabilization of the outlook could happen if the current market development
proves to be sustainable, yielding prospects of CMA achieving the
lower part of our projection band. This would also imply a capital
structure that can yield a debt/EBITDA below 5.0x and FFO interest
coverage at or above 3.0x through the cycle. Any positive
ratings pressure would require the company maintaining or improving the
current liquidity profile.
Negative ratings pressure could arise if the company's debt/EBITDA
ratio increased above 5.5 and FFO interest coverage decreased below
2.0x and stayed at such levels for a prolonged period. Additionally,
sustained negative free cash flow and a weakened liquidity profile would
cause negative pressure on ratings.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Shipping Industry
published in December 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1100802.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
LIST OF AFFECTED RATINGS:
Confirmations:
..Issuer: CMA CGM S.A.
.... Probability of Default Rating,
Confirmed at B2-PD
.... LT Corporate Family Rating, Confirmed
at B2
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Caa1
Outlook Actions:
..Issuer: CMA CGM S.A.
....Outlook, Changed To Negative From
Ratings Under Review
COMPANY PROFILE
CMA CGM is the fourth-largest provider of global container shipping
services. The company operates primarily in the international containerized
maritime transportation of goods, but its activities also include
container terminal operations, intermodal, inland transport
and logistics. For the full year of 2019, the company reported
revenue of $30.3 billion and EBITDA of $3.8
billion.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Daniel Harlid
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Christian Hendker, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
