Frankfurt am Main, March 29, 2011 -- Moody's Investors Service has today assigned a B2 corporate family rating
(CFR) and probability-of default rating (PDR) to Heidelberger Druckmaschinen
AG ("Heidelberger Druck" or "the company"). Concurrently,
Moody's has assigned provisional ratings to the company's proposed issuance
of EUR300 million worth of senior unsecured notes (rated (P) Caa1),
which are issued in the context of a refinancing of the company's
existing debt package. The rating outlook is positive. This
is the first time that Moody's has rated Heidelberger Druck.
Moody's issues provisional ratings in advance of the final sale of securities
and these reflect the rating agency's credit opinion regarding the transaction
only. Upon a conclusive review of the final documentation,
Moody's will endeavour to assign definitive ratings to the instrument
mentioned above. A definitive rating may differ from a provisional
rating, for example due to a different amount of total debt at closing
or changes to the underlying terms and conditions of the instruments.
RATINGS RATIONALE
The B2 corporate family rating (CFR) reflects Moody's expectation
that Heidelberger Druck -- despite showing first signs of performance
improvements following a major cyclical downturn -- will exhibit
a relatively high leverage as per March 2011 with still comparatively
low levels of profitability and negative free cash flow generation.
"While the relatively weak initial credit metrics -- Moody's
adjusted debt/EBITDA estimated to be around 7.3x as of March 2011
-- are a constraining factor on Heidelberger Druck's rating,
Moody's also notes the company's strong business profile with
leading market positions and a diversified geographic footprint,
which positions the company well to benefit from an improving market environment,"
says Sabine Renner, Assistant Vice President and Moody's lead analyst
for Heidelberger Druck. "The positive outlook reflects Moody's
expectation that a sustained rebound in demand levels together with a
leaner cost base should allow the company to improve its metrics relatively
quickly." adds Ms. Renner. Moody's notes that
the positive outlook does not incorporate headroom for major, extraordinary
investment activity or acquisitions.
With expected revenues of approximately EUR2.6 billion as per March
31, 2011, Heidelberger Druck is the world's leading
producer of sheetfed offset printing presses and related equipment,
which (according to Heidelberger Druck's estimates) benefits from
a 41% market share that is supported by the company's technological
edge, its comprehensive product and service offering and its strong
brand name. Heidelberger Druck exhibits a broad geographic profile,
with a strong footprint in emerging markets, in particular Asia,
which have been and are expected to continue to be major drivers of demand.
Given its end market concentration, Heidelberger Druck is exposed
to the highly cyclical nature of the print equipment business (55%
of revenues in the financial year ending March 2010), which tends
to follow the global GDP development but exhibits stronger volatility.
The magnitude of this exposure became visible during the last economic
downturn, when revenues decreased by approximately 37% during
the two years ending March 2010. Combined with a relatively high
fixed cost base and major restructuring costs, the decrease in revenues
resulted in a significant weakening of profitability to negative operating
profit levels. Following the successful implementation of several
restructuring measures Heidelberger Druck should now be well positioned
to benefit from an expected improvement in market conditions and sustain
profitability. In order to reduce the company's exposure
to cyclical fluctuations, Heidelberger Druck's strategy focuses
on the strengthening of its packaging printing as well as services and
consumables businesses, which tend to follow more stable patterns,
and thus improve the overall visibility and stability of the company's
revenue streams.
While Heidelberger Druck's leverage as of March 2011 is expected
to be high at approximately 7.3x debt/EBITDA (including Moody's
adjustments, mainly for pensions, operating leases and guarantees
for third party debt), we expect leverage metrics to improve relatively
quickly, as a more favorable market environment is likely to fuel
top-line growth, lead to improved levels of profitability
and thus free cash flow generation, which has been negative during
the crisis years ending March 2009 and 2010. While a continuation
of the recent positive trends in order intake and revenues is expected
to be supported by a rebound in investment activity in industrialized
countries and increasing demand from emerging markets, Moody's
notes that the overall mid-term visibility with regard to the sustainability
and magnitude of this trend remains limited at this stage.
Moody's views Heidelberger Druck's liquidity position as good,
given that the company had approximately EUR149 million of cash as per
end of December 2010 (of which approximately EUR 50million are estimated
to be temporarily restricted due to foreign exchange restrictions);
and will have access to a EUR500 million revolving credit facility,
which will be largely undrawn initially. The facility is subject
to a material adverse change clause and financial covenants, which
-- assuming a continuing trend of top line growth, profitability
improvements and at the same time stringent management of working capital
-- is likely to have satisfactory headroom, in the rating agency's
view. The next major maturity of financial debt is in March 2013,
when EUR50 million of promissory notes are due to mature. Moody's
also expects Heidelberger Druck's internal and external sources of liquidity
to be sufficient to cover its cash outflows relating to, for example,
working capital or capital expenditures.
Heidelberger Druck's financing package consists of a EUR500 million
senior secured revolving credit facility, EUR58 million of senior
secured promissory notes as well as the proposed EUR300 million senior
unsecured notes, which all benefit from guarantees of group entities
representing approximately 75% of total assets. The (P)
Caa1 (LGD5, 78%) rating assigned to the senior unsecured
notes is two notches below the B2 CFR and reflects the junior ranking
of the notes behind a sizable amount of senior secured debt (assuming
that the revolving credit facility would be largely drawn in a default
scenario), which also benefits from pledges on the majority of the
company's assets.
Assignments:
..Issuer: Heidelberger Druckmaschinen AG
.... Probability of Default Rating,
Assigned B2
.... Corporate Family Rating, Assigned
B2
....Senior Unsecured Regular Bond/Debenture,
Assigned (P)Caa1
....Senior Unsecured Regular Bond/Debenture,
Assigned a range of LGD5, 78 %
The positive outlook on the rating reflects Moody's expectation that,
going forward, Heidelberger Druck is likely to benefit from an improving
market environment that should support a rebound in revenues and profitability
and thus allow the company to reduce its leverage to levels commensurate
with the B1 rating category, as exemplified by a leverage of debt/EBITDA
sustainably below 5.0x, while free cash flow should reach
positive levels. To support an upgrade, Moody's would
also expect the global economy and market for print equipment to show
at that time evidence of further growth .
Moody's would consider changing the outlook on the B2 rating to stable
if Heidelberger Druck would fail to reduce its leverage towards 5.0x
within 12 to 18 months after the rating assignment.
The principal methodologies used in this rating were Global Heavy Manufacturing
Rating Methodology published in November 2009, and Loss Given Default
for Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
Based in Heidelberg, Germany, Heidelberger Druck is the leading
manufacturer of sheetfed offset printing presses with expected revenues
of approximately EUR2.6 billion as per financial year end March
2011. Heidelberger Druck supplies equipment for sheetfed offset
printing as well as associated upstream and downstream activities,
services and consumables to printing companies, primarily in the
advertising and packaging printing segment.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Frankfurt am Main
Sabine Renner
Asst Vice President - Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Frankfurt am Main
Matthias Hellstern
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns B2 CFR and (P) Caa1 senior unsecured notes ratings to Heidelberger Druckmaschinen AG, outlook positive
