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Rating Action:

Moody's affirms LVMH A1 rating; outlook stable

31 Mar 2020

Paris, March 31, 2020 -- Moody's Investors Service, ("Moody's") has today affirmed LVMH Moet Hennessy Louis Vuitton SE's (LVMH) A1 long-term issuer rating and P-1 short-term issuer rating. In addition, Moody's has affirmed LVMH's A1 rating of senior unsecured notes and the (P)A1 rating of its senior unsecured medium-term notes program; including the P-1 commercial paper program rating of LVMH Moet Hennessy Louis Vuitton Inc. The outlook remains stable for both entities.

RATINGS RATIONALE

Although the Coronavirus outbreak is creating a severe and extensive credit shock across many sectors, regions and markets, Moody's believes that LVMH's credit quality remains well-positioned within the A1 rating category. The affirmation of LVMH's ratings is despite the agency's expectations that the company's sales and earnings will be negatively affected due to store closures given travel restrictions and lockdowns globally, and the fact that a large proportion of the company's direct and indirect customers are from China where we have already seen prolonged lockdowns and travel restrictions. Moody's expects a weaker economic environment through 2021 on account of the Coronavirus crisis, but companies in the luxury sector with strong product and geographic diversification, such as LVMH, have tended to be relatively resilient in an economic downturn. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

LVMH's business model is strong to accommodate a temporary deterioration of its credit ratios. Its A1 rating factors in (1) its number one position in the luxury market worldwide, with €54 billion of revenue reported in 2019; (2) its good business and geographic diversity, further increased by the acquisition of Tiffany & Co. (Baa2, RUR Up), which decrease earnings volatility; (3) its portfolio of prestigious brands; (4) its robust free cash flow generation -- as evidenced by a Moody's adjusted free cash flow of €2.3 billion in 2019.

Moody's forecasts that LVMH's Moody's-adjusted (gross) debt/EBITDA ratio will likely remain higher than the 3x level commensurate with a A1 rating in 2020 and possibly in 2021. The rating affirmation assumes that, over time, LVMH's EBITDA will start rising again at a pace similar to the 9% average growth rate achieved over the 2015-2019 period.

LVMH's A1 issuer rating and stable outlook reflect Moody's expectations that the company will focus over the next 24 months on reducing its gross debt, to restore its credit metrics to be back in line with the parameters for the rating category -- including a Moody's-adjusted debt/EBITDA ratio below 3x -- and that it will pursue a prudent financial policy.

LVMH has a good liquidity underpinned by €5.7 billion of cash on balance sheet as of 31 December 2019 as well as €0.9 billion of marketable securities, compared to €7.6 billion of short-term debt. It has also access to €21.1 billion of available credit facilities, of which €15.2 billion have been set up to secure financing for the acquisition of Tiffany. When the transaction was announced, this financing package comprised a $8.5 billion bridge facility, a $5.75 billion commercial paper back up line and a €2.5 billion revolving credit facility. In February 2020, LVMH raised €7.5 billion and GBP1.55 billion pounds through several bond issuances.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects Moody's view that the Coronavirus outbreak will not impair LVMH's robust business risk profile and that its earnings will start growing again after the epidemic subsides. This will enable the group to improve credit ratios that are currently weakly positioned for an A1 rating reflecting the recent acquisition of Tiffany's and coronavirus-related disruption.

The rating agency also assumes that LVMH will stabilise Tiffany's earnings over time and that it will not incur sizable restructuring charges. Moreover, Moody's does not expect that LVMH will make any sizable debt-funded acquisition over the next 18 months and that most of its free cash flows after dividends will be allocated to debt repayment.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of the ratings:

Although an upgrade is unlikely in the near future, Moody's could upgrade LVMH's ratings if it committed to maintaining a (gross) debt/EBITDA ratio of less than 2x and a funds from operations (FFO)/net debt ratio above 45%, on a Moody's-adjusted basis, on a sustainable basis. This would require higher-than-expected earnings growth as well as more moderate shareholder remuneration and restrained debt-financed acquisitions. A positive rating action would also hinge on a more balanced earnings contribution of each business division.

Conversely, the rating agency could consider a negative rating action if, on a Moody's-adjusted basis, its (gross) debt/EBITDA ratio remained at 3x or if its Funds From Operations/net debt ratio stayed around 35% for a prolonged period of time. Such a scenario could unfold in the event of a sustained downturn of the luxury industry, a deterioration of LVMH's key brands or a failure to curb Tiffany's earnings decline.

Moody's could also consider a downgrade if it considers that LVMH's financial policy has become more aggressive, as shown for instance by the occurrence of another sizable debt-financed acquisition over the next 18 months. Lastly, Moody's could also lower LVMH's ratings if the credit quality of the group's controlling holding companies deteriorated significantly.

COMPANY PROFILE

With €54 billion of revenue in 2019, LVMH is the world's largest luxury group, ahead of The Estee Lauder Companies Inc. (A1 stable), Compagnie Financière Richemont SA, EssilorLuxottica (A2 stable) and Kering. Its main shareholder is the Arnault Family Group, which held 47% of the capital and 63% of the voting rights as of 31 December 2019.

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.

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.

Vincent Gusdorf, CFA
VP - Sr Credit Officer
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Jeanine Arnold
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2020 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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