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Rating Action:

Moody's assigns B2 CFR to Travelex; stable outlook

19 Jul 2013

London, 19 July 2013 -- Moody's has today assigned a corporate family rating ("CFR") of B2 and a probability of default rating ("PDR") of B2-PD to TP Financing 3 Limited ("Travelex" or "the company"). Concurrently, Moody's has assigned a provisional rating of (P)Ba2 to the planned GBP90 million revolving credit facility and a provisional rating of (P)B2 to the proposed GBP350 million senior secured notes due 2018 to be issued by Travelex Financing PLC. The outlook on the ratings is stable.

Moody's issues provisional ratings in advance of the final sale of securities and these ratings reflect Moody's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, including any possible changes during the syndication process, Moody's will endeavour to assign a definitive rating to the facilities. A definitive rating may differ from a provisional rating.

RATINGS RATIONALE

Travelex's B2 CFR reflects the company's (i) strong brand recognition, its business profile and its position as the leading global retail foreign exchange provider supported by a geographically diverse network of points of sale; (ii) strong relationships with key central banks, reserve banks and large commercial banks providing it with ease of access to foreign bank notes, and long-dated relationships with outsourcing and wholesale customers; (iii) adequate liquidity on the basis of a large "useable cash" balance and adequate availability under its RCF; (iv) prudent management of its inventory of currencies and its hedging policy for any currencies stocked in large quantities.

The B2 CFR also reflects (i) the high adjusted debt to EBITDA of around 6.0x and weak free cash flow generation in the next two years as a result of the "One Platform" project; (ii) the complex corporate structure of the group and the complex financial and methodological adjustments that arise from the travellers' cheques business; (iii) the risk that retail cash foreign exchange services could experience pronounced diminishing demand as debit card usage grows in emerging markets to the detriment of cash payments (iv) the low client diversification in the Partners and Wholesale businesses although this is partly mitigated by a strong track-record of client retention.

The proceeds from the proposed senior secured notes will be used to refinance all outstanding indebtedness under Travelex's senior PIK Loan Facility together with accrued interest and related costs. As part of this transaction, the company will also replace its existing revolving credit facility ("RCF") with a new Super Senior GBP90 million RCF expiring in 2018. The notes will benefit from guarantees from all material subsidiaries of the company to the extent this is applicable and feasible under local jurisdictions where these subsidiaries are located.

At the same time, the company has announced the inception of an insurance policy with AmTrust which effectively transfers the risk of excess encashment of outstanding travellers' cheques from the company to the insurer. This will allow Travelex to simplify its complex corporate structure and to unwind and substantially cancel around GBP450 million of legacy intercompany loans owed by the main group to the travellers' cheques business before this business is finally fully transferred to AmTrust in 2014. The company expects the total cost of this transaction to the Restricted Group to be in the region of GBP51 million (to be paid in instalments), and Moody's anticipates that the intercompany loan will be substantially eliminated in Q3 2013.

While the cash outflows related to this transaction are not immaterial, Travelex retains an adequate liquidity profile. We note however that Travelex is likely to remain free cash flow negative for the next 18 months. In that context, Moody's also notes that EBITDA for Q1 2013 was materially below that for Q1 2012 (in percentage terms, although absolute amounts are low) whilst also noting that Q1 has historically not been an important contributor to Travelex's full year results.

Moody's notes that the bond prospectus breaks down the level of "useable cash", and assumes that this figure will continue to be provided on a comparable basis going forward in audited accounts.

Given the separation plans for the travellers' cheques group, Moody's has excluded this entity's EBITDA from the calculation of Travelex's leverage. Moody's has also adjusted Travelex's EBITDA to include the proportionate share of dividends received from some Joint Ventures which are not reported under IFRS as subsidiaries. This treatment reflects Moody's understanding of the relationship the company has with these JVs, and the very limited input of the main JV partners in the management of those JVs. Any change in this view could lead to a change in this adjustment.

Travelex's ratings are constrained by the above mentioned adjustments as well as by the uncertainty over the successful and timely implementation of the company's ongoing cost saving reorganisation and the One Platform project. In addition, while Travelex's recent acquisition of Brazil's Grupo Confidence allows the group to enter a new geography with an established network of points of sale, execution and event risks could put pressure on the performance of this entity.

Travelex's CFR and PDR are aligned reflecting our assumption of a 50% recovery rate as is customary for capital structures including both bank debt and bonds. The ratings on the other instruments reflect their relative ranking as set out in the intercreditor agreement with the RCF ranking senior to the senior secured notes in the waterfall, which is reflected in the three notch differential in their ratings.

Upwards rating pressure could arise if the company reduces adjusted leverage sustainably below 5.5x. The company would also need to have concluded the disposal of the travellers' cheques business, and free cash flow should have turned positive.

Downwards rating pressure could arise if adjusted leverage rises towards 6.5x, and/or liquidity concerns arise. Negative pressure could also arise if the intercompany loans are not essentially eliminated during Q3 2013

In assessing Travelex's credit profile, Moody's has also taken into account the framework of the Moody's Global Business and Consumer Service Rating Methodology, published in October 2010 and available on www.moodys.com. The indicated rating from the methodology grid is B3 (based on 2013 expectations).

Rating grids are an analytical tool only and the ultimate rating outcome is based on additional factors that may not be incorporated in these. The one notch differential between the grid outcome and the B2 CFR assigned reflects the strong business profile of the company and its position as the leading global foreign exchange service provider.

The principal methodology used in these ratings was the Global Business & Consumer Service Industry Rating Methodology published in October 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Christian Azzi
Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Chetan Modi
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns B2 CFR to Travelex; stable outlook
No Related Data.
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