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Rating Action:

Moody's affirms Aeroporti di Roma's Baa3 ratings; outlook negative

24 Jun 2020

Madrid, June 24, 2020 -- Moody's Investors Service, (Moody's) has today affirmed the Baa3 senior unsecured and underlying senior secured ratings and the (P)Baa3 senior unsecured EMTN programme rating of Aeroporti di Roma S.p.A. (ADR). The outlook on the ratings remains negative.

RATINGS RATIONALE

ADR's Baa3 ratings currently reflect a degree of linkage with its parent company, Atlantia S.p.A. (corporate family rating Ba2 negative), which has control over the financial policy of the company. ADR's standalone credit profile was very strong for a Baa3 rating level, prior to the coronavirus outbreak. The affirmation of ADR's ratings reflects the strong financial and liquidity position of the company that should allow it to withstand the negative effects of the pandemic. Notwithstanding the increasing duration and severity of the coronavirus outbreak, and the ongoing uncertainty regarding the pace of recovery in traffic, Moody's expects that ADR credit metrics will recover to levels commensurate with a Baa3 rating by next year. The rating affirmation also reflects Moody's expectation that the company will continue to implement measures aimed at preserving earnings and restoring its financial profile.

The negative outlook assigned to ADR's ratings reflects the company's elevated credit risks due to the sharp decline in traffic and the continued uncertainties around recovery prospects, with risks of extended disruption to travel causing strain on the company's balance sheet and liquidity. The negative rating outlook also reflects the negative pressures and downside risks to the Atlantia group resulting from the potential consequences of the collapse of the Polcevera viaduct.

The rapid spread of the coronavirus outbreak, severe global economic shock, low oil prices, and asset price volatility are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The airport sector has been one of the sectors most significantly affected by the shock given its exposure to travel restrictions and sensitivity to consumer demand and sentiment. Today's action reflects the impact on ADR of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered. Moody´s regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.

ADR was initially affected by the coronavirus outbreak at the beginning of March when cases started to increase in the north of Italy and the government implemented severe restrictive measures. As the pandemic spread across Europe and globally, a number of countries started to introduce travel bans and confinement measures. As a result, ADR experienced a substantial disruption in operations with traffic declines of around 98%-97% in April and May, compared to the previous year, which severely hit aeronautical and commercial revenues. In response to the crisis, ADR has implemented a series of cost-cutting initiatives which included the closure of the Ciampino airport, reorganisation of Fiumicino airport facilities, the reduction in labour costs, the elimination of non-essential expenses and a significant revision of its investment programme. Since the start of June, air travel restrictions have been gradually eased in most European countries, including Italy, and ADR activities are starting to resume slowly.

In this context, Moody's has revised its traffic assumptions for European airports recognising that the impact of the reduction in global air travel will not be even and will vary depending on the airport location, its airline mix and type of traffic served. Moody's expects that after the period of severe cuts in passenger traffic observed since March there will be a very gradual recovery in passenger volumes starting in June 2020, but remaining severely depressed over 2020 and 2021. Domestic flights will recover earlier, with a slower return for international and long haul flights. Moody's base case assumes that passenger volumes will not recover to 2019 levels until 2023 at the earliest. However, there are high risks of more challenging downside scenarios, including deeper reduction in passenger volumes and a slower recovery.

Moody's currently expects that the decline in ADR's passenger traffic will amount to around 60%-70% in the financial year ending December 2020, with 2023 passenger volumes to recover to about 90%-95% of 2019 levels. Notwithstanding the expectation of significantly reduced cash flow over at least the next two years, ADR´s airports remain an important infrastructure provider in Italy with a potential for recovery once the coronavirus pandemic and its effects have been contained.

Overall, the Baa3 rating of ADR reflects (1) the strong fundamentals of its airports given Rome's position as one of Europe's major capital cities; (2) the resilient traffic profile demonstrated in the past, characterised by a significant traffic component from European countries; (3) the high proportion of origin and destination passengers and traffic inbound, with a significant leisure component; (4) a transparent framework of economic regulation for aviation activities, which is gaining a longer track record and should allow the company to recover over the long term the loss in earnings due to the coronavirus impact; (5) the company's moderate financial leverage and strong liquidity profile; and (6) the exposure to a loss making carrier (Alitalia), which is expected to be supported by a strong financial package of €3 billion from the Italian government to ensure its business continuity.

LIQUIDITY AND DEBT COVENANTS

ADR's liquidity position was very good prior to the coronavirus outbreak, with around €500 million in cash at the end of December 2019. Moody's understands that in the first half of the year the company has drawn around €180 million from its availability under its term loan with Cassa Depositi e Prestiti and a new signed loan with financial institutions. In addition, ADR has a remaining undrawn amount of €550 million under its revolving credit facilities and term loans. Therefore, ADR's liquidity position should allow the company to cover all cash requirements, including operating expenses and debt repayments, until December 2021.

Given the reduction in earnings, Moody's expects ADR's ratios to deteriorate with a high probability of the company breaching the financial covenants included in its debt documentation in the next 12 months. ADR's debt documentation includes two financial covenants -- net debt/EBITDA of 4.25x and interest cover ratio of 3x -- tested semi-annually on a historical basis. ADR has requested and obtained waiver approvals from its lenders until June 2021, except from the European Investment Bank (EIB). Moody's expects the company to receive approval from the EIB in the coming weeks.

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

Given the current negative outlook, upward rating pressure is unlikely in the near future. The outlook of ADR could be stabilised, following return to normal traffic performance, if (1) the outlook of Atlantia was stabilised; (2) the company's financial profile and key credit metrics rebound to pre-coronavirus levels; and (3) ADR continue to maintain a strong liquidity profile.

Negative rating pressure would result from (1) negative pressures on Atlantia's credit profile; (2) a permanent weakening of the company's financial profile; (3) a deterioration of the group's liquidity profile; (4) increase risk of extended covenant breaches; or (5) an increased likelihood that the coronavirus outbreak will have a more pronounced and sustained detrimental impact on traffic.

The principal methodology used in these ratings was Privately Managed Airports and Related Issuers published in September 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1092224. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

ADR is the concessionaire for the two airports serving the city of Rome - Fiumicino and Ciampino - which recorded 49.4 million passengers in 2019. Fiumicino is the ninth busiest airport in Europe by passenger volume and accounts for the majority of total traffic handled by ADR. ADR operates the two airports under a long-term concession expiring in June 2044. The company also holds a 7.7% stake in Azzurra Aeroporti S.p.A. (Baa3 negative), the holding company for Aeroports de la Cote d'Azur (Baa2 negative) which manages the concession for the Nice airport.

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.

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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