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Rating Action:

Moody's affirms A3 ratings of Vinci and ASF; stable outlook

09 Apr 2020

Madrid, April 09, 2020 -- Moody's Investors Service (Moody's) has today affirmed the A3 long-term senior unsecured debt and issuer ratings of Vinci S.A. (Vinci), the (P)A3 rating on Vinci's EUR12 billion euro medium-term note (EMTN) programme, and the Prime-1 short-term issuer and commercial paper rating. Concurrently, Moody's has affirmed the A3 senior unsecured debt ratings of Autoroutes du Sud de la France (ASF) and the (P)A3 rating on ASF's EUR12 billion euro medium-term note (EMTN) programme. The outlook on the ratings is stable.

ASF is the leading motorway concession company in France and it is 100% owned by Vinci, the holding company of one of Europe's largest concession and construction groups.

RATINGS RATIONALE

Affirmation of the ratings of Vinci and ASF with a stable outlook reflects that the group has a strong liquidity position and has maintained a prudent financial policy that should allow it to withstand the coronavirus shock. Moody's expects the pandemic to result in weaker credit metrics for Vinci and ASF in 2020, compared to 2019, and potentially below levels commensurate with the A3 rating. However, the rating agency also anticipates a gradual recovery in traffic volumes and revenue following the lifting of the restrictive measures, supporting an improvement in key credit metrics to within guidance for the current rating.

The rapid and widening spread of the coronavirus (COVID-19) outbreak, the deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. In particular, the transport infrastructure sector has been significantly affected by the shock given its exposure to travel restrictions and sensitivity to consumer demand. Moody´s regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.

In response to the coronavirus outbreak, since the beginning of March, several European governments, including France, Germany and the UK, have imposed a series of restrictive measures and travel bans aimed to contain the wider spread of coronavirus. These unprecedented public health measures will be in place for an unknown period of time. The restrictions on movements resulted in sharp declines in traffic volumes for the airports and motorway networks operated by Vinci, including that of ASF. In addition, the associated quarantine and social-distancing measures have slowed or halted construction activities in many countries negatively impacting the contracting business of Vinci.

Moody's base case assumption is that the coronavirus pandemic will lead to a period of severe cuts in traffic in the airport and toll road sector over the upcoming weeks but that there will be a gradual recovery in volumes starting by the third quarter 2020. Moody's expects toll roads to be able to recover generally quicker than airports, driven by (1) the regional or national nature of operations and regulations; and (2) a shift in consumer preference to private cars over air travel or other modes of transport to minimize exposure to crowed places and reduce expenditures during a period of economic uncertainty. Toll roads are also not exposed to the decisions or financial sustainability of airlines that may impact airport operations.

Unlike previous negative shocks, the prospects for traffic rebound is more uncertain because (1) travel restrictions in some form may continue for some time even if the spread of the virus seems contained; (2) a deteriorating global economic outlook would likely slow the recovery in traffic and consumer spending, even if travel restrictions are eased; (3) the coronavirus outbreak is also weakening the credit profile of airlines, which have been drastically cutting capacity. As events continue to unfold rapidly, there is a higher than usual degree of uncertainty around the duration of travel restrictions and drop in consumer demand. Hence, it is difficult to predict the overall traffic volumes for 2020.

Nevertheless, Moody´s expects that the decline in Vinci's airport passenger traffic will be at least 30% and the decline in Vinci's motorway network traffic, including that of ASF, will be at least 25% in 2020. There are, however, high risks of more challenging downside scenarios. Notwithstanding the significantly reduced cash flow over at least the next few weeks, airports and motorways operated by Vinci are important infrastructure assets, with a potential for recovery once the coronavirus outbreak and its effects have been contained.

Vinci's contracting division exhibits a more cyclical profile and a higher risk compared to the concession operations. Vinci's sizeable backlog for its contracting division should support its revenues in the near term. However, its operating performance and margin profile in 2020 will be negatively impacted by the timing and mix of projects and virus related stoppages and delays, which have begun to occur in many European countries and the US. Whilst the energy division (accounting for 13% of consolidated 2019 EBITDA) should see lower declines in revenues, given that it provides maintenance of essential infrastructure assets that continue to operate, the road construction and maintenance business Eurovia and Vinci Construction (accounting both for a total 16% of consolidated 2019 EBITDA) will be more impacted, with revenue declines by at least 15% in 2020. Overall, Moody's expects that the prospects for future bidding opportunities and backlog growth will be clouded by the potential economic impact of the coronavirus.

Vinci's ratings continue to reflect (1) its size and position as one of Europe's largest integrated concession and construction groups; (2) the strong contribution of the concessions division to the group's cash flow generation; (3) the relatively good performance of the contracting businesses during recent years despite more challenging macroeconomic conditions; and (4) a moderate financial leverage, prudent financial policies and strong liquidity. These factors are balanced by (1) Vinci's exposure to cyclical industries; (2) a degree of concentration risk in its domestic market, with approximately 55% of revenues generated in France; and (3) some pressure on margins in the group's contracting division.

To service its senior unsecured debt obligations, Vinci relies on the cash flow generation of its contracting businesses and on dividends received from the concession companies. Whilst there are significant borrowings at the concession subsidiaries, Moody´s does not regard the structural subordination as sufficiently material to warrant an adjustment to the overall rating, as the holding company has access to a significant source of cash flows from unlevered subsidiaries.

The ratings of ASF continue to reflect (1) the very strong fundamentals and competitive position of the group's concession assets comprising the largest motorway network in France with 3,173 km under concession; (2) the economic strength and diversification of its service area; (3) the robust traffic profile with a diversified user base and a long track record of operations; (4) a generally well-established and supportive concession and tariff framework in France; and (5) the fairly leveraged financial profile. Notwithstanding the strength of ASF's credit profile on a standalone basis, its credit quality must be considered in the context of the Vinci group, of which ASF is an integral part.

LIQUIDITY AND DEBT COVENANTS

Vinci's rating is supported by its strong liquidity profile. As of December 2019, the group reported cash and cash equivalents of EUR8.3 billion on a consolidated basis and undrawn committed facilities at Vinci of EUR8 billion, expiring in November 2024. In this respect, Moody's understands that Vinci may be considering to increase further its credit bank facilities.

ASF reported EUR625 million of cash and cash equivalents on balance sheet as of December 2019. The company has access to a EUR2.5 billion internal credit facility from Vinci, expiring in 2023.

As of December 2019, the total group debt (including commercial paper and other short term debt) due in the next 12 months amount to around EUR4.5 billion. Vinci´s liquidity position should allow the group to cover all cash requirements, including debt repayments, even if the group earnings were to significantly decrease in 2020.

Given the detrimental impact on earnings stemming from the current restrictive measures and travel bans, Moody's expects some reduction in the headroom against the financial covenants that are in some of Vinci's subsidiaries debt documents, particularly in certain project financings. Nevertheless, Moody's currently expects Vinci´s subsidiaries to continue to maintain adequate headroom against its default covenants and that Vinci will take any required action to avoid a financial covenant breach in its main subsidiaries. In addition, Moody's notes that the vast majority of ASF's debt is not subject to any financial covenant.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

In light of the current restrictive measures and travel bans linked to the coronavirus outbreak, upward rating pressure on Vinci's and ASF's rating is unlikely in the near future.

Following a return to normal traffic and operating performance, upward pressure on Vinci's rating could develop following a material reduction in indebtedness that resulted in a sustainable improvement in key credit metrics, such that funds from operations (FFO)/debt were to be positioned around 30%, in conjunction with a positive outlook for the contracting division and increasing geographical diversification.

In addition, upward rating pressure on ASF could develop following an upgrade of Vinci's rating, coupled with a strong financial performance of ASF, such that FFO/debt would likely be positioned in the high-teens in percentage terms on a sustained basis.

Downward rating pressure on Vinci could develop as a result of (1) an increased likelihood that the coronavirus outbreak had medium to longer term impact on Vinci's performance, either because of extended restrictions or a significant weaknesses in the macroeconomic environment; (3) a weakening in the group's financial profile such that FFO/debt would likely remain below the high-teens in percentage terms on a sustained basis; (4) a deterioration in the group's liquidity position or material reduction of cash balances held; (5) a material change in the business mix of the group resulting in a heightened risk profile and/or from adverse developments in the regulatory and concession frameworks pertaining to the group's concessions activities.

Downwards rating pressure on ASF could develop if (1) Vinci's ratings were to be downgraded; (2) ASF financial profile were to permanently deteriorate, such that FFO/debt would fall below the low-teens in percentage terms on a sustained basis; or (3) there were a material change in the regulatory framework or in the terms and conditions of the concession agreement that could negatively affect the overall group's business or financial risk profile.

The principal methodology used in these ratings was Privately Managed Toll Roads published in October 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1096736. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Vinci is the holding company of one of Europe's largest concession and construction groups. The group manages several concessions in the toll roads and airport sectors from which its derives almost 70% of EBITDA. It is also involved in construction, road and rail maintenance, energy, engineering and technology services. As of December 2019, the group reported consolidated revenues of EUR48 billion and EBITDA of EUR8.5 billion.

ASF is the leading motorway concession company in France, fully owned by Vinci. The group is the concessionaire for 3,207 km of tolled motorways under two concession agreements signed with the French government by ASF and its subsidiary Escota. The network covers the vast majority of the south of France, linking the country to the Iberian Peninsula and Italy.

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 one of the credit rating outcomes 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.

Erica Gauto Flesch
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Neil Griffiths-Lambeth
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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