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Related Issuers
Rating Action:

Moody's affirms Nexi's CFR at Ba3; outlook changed to positive

30 Nov 2020

Paris, November 30, 2020 -- Moody's Investors Service ("Moody's") has today affirmed Nexi S.p.A.'s (Nexi or the company) corporate family rating (CFR) at Ba3 and probability of default rating (PDR) at Ba3-PD. Concurrently, Moody's has also affirmed the Ba3 instrument rating on the €825 million senior unsecured notes due 2024 issued by Nexi S.p.A. The outlook has changed to positive from stable.

On 15 November 2020, Nexi announced the signing of a framework agreement regarding a combination with Nets Topco 3 S.a r.l. (Nets) through an all-share merger of Nets into Nexi. This follows Nexi's announcement, on 05 October 2020, regarding the signing of a memorandum of understanding with SIA S.p.A. (SIA) for the integration of Nexi and SIA through a merger by incorporation of SIA into Nexi. Upon closing, of the aforementioned transactions, the combined group would remain listed on the Italian Stock Exchange (MTA) and be a leader in digital payments in Europe, generating around €2.9 billion of proforma revenue and approximately €1.5 billion of proforma company-adjusted EBITDA (including run-rate synergies).

The combination of Nexi and Nets will be an all-share transaction, similar to the previously announced Nexi-SIA merger, and will also involve Nexi assuming around €1.9 billion of Nets' outstanding debt at close, €1.5 billion of which will be refinanced via an unsecured bridge facility already raised by Nexi. Upon closing of both transactions, the largest shareholders of the enlarged Nexi-SIA-Nets group will be Cassa Depositi e Prestiti S.p.A. (CDP, Baa3 stable), with a stake of about 17%, and Hellman & Friedman, Nets' current shareholder, with a stake of about 16%. The transactions are conditional upon several elements including regulatory approvals and, in the case of Nets, the completion of the disposal of its Corporate Services division to Mastercard. Nexi expects its combination with Nets to complete in the second quarter of 2021, and its combination with SIA to close in the third quarter of 2021.

RATINGS RATIONALE

The change in outlook to positive, and affirmation of the existing Ba3 ratings, recognizes that the mergers of Nets and SIA into Nexi would improve Nexi's credit profile, through a significant increase in scale, greater geographic, customer and product line diversification, and lead to stronger financial ratios, given the all-shares based funding of the transactions and forecast synergies.

Nexi's acquisition of Nets would result in a significant increase in size and geographic diversification, while the combination with SIA would bring in-market consolidation in Italy, with Nexi further strengthening its market leadership position. The transactions are expected to result in recurring cash synergies that Nexi estimates at €320 million (€170 million from Nets, €150 million from SIA) and would gradually materialize between 2021 and 2025. While we view integration risks as moderate for both Nexi-Nets and Nexi-SIA combinations taken individually, with limited overlap of activities between the three companies, we highlight that successful integration of both businesses in quick succession carries higher execution risk and will need to be carefully implemented.

Moody's estimates that the integration of both Nets and SIA would increase Nexi's Moody's-adjusted debt to €5.7 billion on a proforma basis, up from €2.8 billion, considering 2020 forecast data. The rating agency expects Nexi's Moody's-adjusted (gross) leverage will decline from a forecast 5.1x in 2020 (excluding Nets and SIA but including the proforma effects of the Intesa San Paolo merchant book acquisition closed in June 2020) to 4.8x at the end of 2021 (including Nets and SIA on a proforma full-year basis) and to 4.3x at 2022. Moody's anticipates that the acquisitions will benefit Nexi's cash generating capability, with the combined group's Moody's-adjusted free cash flow (FCF) generation rising to above €0.5bn per year from 2021 onwards, or c. 9% of Moody's-adjusted debt.

Nexi has stated a "medium term" net leverage target of 2.0x-2.5x, which is equivalent to up to 3.5x Moody's-adjusted leverage, and the conservative way in which the transaction with SIA has been structured, is evidence of a more conservative financial policy. The shift in ownership to CDP could also support more conservative financial policies going forward. Nevertheless, Nexi has publicly stated its intention to use the combination with SIA and Nets as a platform for future organic and inorganic growth and to participate in the sector's ongoing consolidation, which means acquisitions are likely to take place in our view and this could limit any deleveraging.

Nexi's Ba3 ratings, prior to the merger with SIA and Nets, continue to reflect (1) the company's presence across the payments value chain in Italy with leading market shares in merchant acquiring, card issuing, point-of-sale and automated teller machines (ATM) management, among others, (2) the company's strong relationships with around 150 partner banks, which are both clients and distributors of its payment solutions to both merchants and individuals, (3) high barriers to entry in the payment processing market, (4) good growth prospects supported by the relatively low penetration of card transactions in Italy, and (5) Nexi's good liquidity position.

These strengths are nevertheless currently mitigated by (1) the concentration of operations in a single country, (2) the relative concentration of customers due to the wholesale nature of its issuing and clearing services, (3) execution risks related to growth, ongoing reduction in non-recurring items and continued improvement in free cash flow generation, (4) potential competition following the implementation of PSD2, and (5) the company's acquisitive nature with potentially negative implication for future leverage, as well as associated integration risk.

Moody's assumes that Nexi will continue to benefit from a good liquidity position supported by (1) cash of €406 million (excluding €143 million of cash equivalents) as at 30 September 2020, (2) an undrawn €350 million revolving credit facility (RCF) due 2024, and (3) dedicated clearing and overdraft facilities, including a non-recourse factoring line of up to €3,200 million and €1,500 million of bilateral credit facilities, that cover the group's short-term working capital requirements.

STRUCTURAL CONSIDERATIONS

The existing €825 million senior unsecured notes due 2024, €1 billion term loan due 2024, €466.5 million term loan due 2025, €500 million equity-linked bond due April 2027 and €350 million RCF due 2024 all rank pari-passu as unsecured liabilities of the company. The €1.7 billion bridge facility raised to refinance Nets' outstanding debt as well as facilities that are expected to refinance SIA's existing debt also rank pari-passu as unsecured liabilities of the company. As part of the proposed acquisition of Nets, €220 million of senior unsecured notes issued by Nassa Topco AS (a subsidiary of Nets Topco 3 S.a r.l.) will remain outstanding.

The existing €825 million senior unsecured notes due 2024 are rated Ba3, at the same level as the CFR, reflecting the relatively small size of the liabilities of Nexi's operating subsidiaries, including trade payables, pensions and operating leases which rank ahead given the absence of upstream guarantees on the notes. The RCF and term loan are subject to one, net leverage based, financial maintenance covenant set at 5.75x until 2020, with subsequent gradual tightening.

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

Positive rating pressure could arise if (1) Nexi delivers on its revenue and EBITDA growth targets and successfully closes and integrates both Nets and SIA, (2) the company continues to reduce non-recurring items materially, (3) Moody's-adjusted leverage improves to 4.5x on a sustained basis following the closing of the Nets and SIA transactions (well below 4.5x if the mergers do not materialize), (4) Moody's- adjusted FCF/debt improves towards high single-digits on a sustained basis, and (5) the company maintains a good liquidity position.

Negative rating pressure could arise if (1) Nexi experiences the loss of large customer contracts or increased churn, (2) Moody's-adjusted leverage increases to above 5.5x on a sustained basis post the closure of the Nets and SIA acquisitions (above 5.0x if the mergers do not materialize), (3) free cash flow generation weakens, or (4) the company's liquidity position deteriorates.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Headquartered in Milan, Italy, Nexi is the leading provider of payment solutions in its domestic market, including card issuing, merchant acquiring, point-of-sale and ATM management and other technology- driven services to financial institutions, individual cardholders, and corporate clients. The company reported net revenue and company-adjusted EBITDA of €1.0 billion and €503 million, respectively, in 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.

Fabrizio Marchesi
Vice President - Senior Analyst
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.
© 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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