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Rating Action:

Moody's assigns B2 corporate family rating to Promontoria following closing of acquisition by Cerberus

05 Oct 2018

London, 05 October 2018 -- Moody's Investors Service ("Moody's") has today assigned a B2 corporate family rating to Promontoria Holding 264 B.V. (Promontoria) following the acquisition of the group by funds controlled by private equity firm Cerberus. Moody's has also affirmed the B2 rating of the EUR660 million senior secured notes issued by Promontoria. Outlook to all the ratings at Promontoria level is stable. Concurrently, Moody's withdrew the B3 corporate family rating (CFR) and the B3-PD probability of default rating (PDR) of WFS Global Holding S.A.S. The B3 rating of its existing EUR375m Senior Secured Notes and the Caa2 rating of its existing EUR140m Senior Unsecured Notes are unchanged, we expect them to be withdrawn upon planned repayment.

RATINGS RATIONALE

The B2 corporate family rating reflects Promontoria's (i) strong position in the cargo business as the largest independent global cargo handler, which is complemented by its trucking network across Europe and somewhat high barriers to entry given the limited supply of on-airport warehouses; (ii) good geographical diversification with revenues evenly split between Europe and the Americas; and (iii) a relatively stable client base and good track record in contract renewal, offsetting some customer concentration to the Air France -- KLM group and American Airlines representing around 16% of revenues.

However, the rating also reflects the company's (i) core cargo business' exposure to economic and international trade cyclicality; (ii) airline customer base and competitive nature of the industry which is causing price pressure and consolidation; (iii) moderately high lease adjusted debt to EBITDA of around 4.5x as expected by year-end 2018 and (iv) historical non-recurring costs.

The B2 rating also reflects Moody's expectation that non-recurring costs will reduce substantially in 2018. In the first 6 months of 2018 WFS charged EUR4 million of restructuring and other non-recurring items - a notable decrease compared to EUR 12.7 million in the first 6 months of 2017. The rating also assumes that the new owner will continue to focus on operational improvements including labour related initiatives and investments in technology and that the contribution to revenues from ground handling activities will remain relatively unchanged with commercial efforts targeting high volume narrow bodied dominated airports. The rating also reflects a lower cost of debt compared to the existing capital structure with EBITA to Interest improving to around 1.8x from 1.2x.

The calculation of Moody's adjusted leverage is based on an assumption of continued operating lease capitalization at the standard 3x multiple to rent expense, which may be affected by the new IFRS 16 standard for leases.

LIQUIDITY

We view WFS's liquidity as adequate. The company benefits from EUR57.5 million availability under its EUR 100 million RCF post drawdowns and letters of credit utilisation. In addition, free cash flow generation is expected to improve due to a lower cost of debt assumed and a reduction of non-recurring costs. We expect RCF/Debt as defined by Moody's in the 10%-15% range. The company will also benefit from a longer debt maturity profile pro-forma for the refinancing.

STRUCTURAL CONSIDERATIONS

The EUR 660 million senior secured notes due 2023 (rated B2 and comprising 6.75% EUR400 million fixed rate and 6.25%+EURIBOR EUR260 million floating notes) share the same security and guarantees as the EUR100 million RCF (unrated). The security includes share pledges in subsidiaries, intragroup receivables due to subsidiaries, and cash. However, the notes rank behind the RCF due to contractual subordination via the intercreditor agreement in case of enforcement. This leads to an outcome in which the Senior Secured Notes are rated at the same level of the CFR, since the senior secured debt accounts for the vast majority of modelled debt.

The ratings also incorporate our understanding that the shareholder funding into the restricted group is wholly via common equity.

RATIONALE FOR STABLE OUTLOOK

The stable outlook reflects our expectation of a gradual deleveraging of the business based on maintaining or growing its market share in a reasonably stable market environment and achieving positive FCF in the context of lower cost of debt and reduced exceptional costs. The outlook also incorporates an expectation that the company will maintain a sufficient liquidity cushion, including access to EUR100 million of Revolving Credit Facility (RCF). The outlook does not take into account any further material debt funded acquisition nor any potential shareholder friendly actions.

WHAT COULD CHANGE THE RATING UP/DOWN

Moody's could over time consider upgrading the rating if there is a visible improvement in gaining further scale and diversification as well as strengthening its operating performance. Quantitatively, positive pressure could materialise if the company's (1) adjusted leverage decreases below 4.0x; and (2) EBITDA / Interest increase towards 2.5x; and (3) FCF / debt improves towards 5%.

Moody's would consider downgrading the rating if the company's liquidity profile and credit metrics deteriorate as a result of a weakening of its operational performance, acquisitions, or a change in its financial policy. Quantitatively, negative pressure could materialize if the company's (1) Moody's-adjusted debt/EBITDA ratio increases towards 5x, (2) EBITA / Interest falls below 1.5x or (3) FCF remains negative for the next 12-18 months.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Promontoria is a global aviation services company principally focused on cargo handling (71% of last twelve months revenues ended June 30, 2018) and ground handling (25%), with a small presence in Transport Infrastructure Management & Services (TIMS, 4%). For the twelve months ended June 30, 2018, WFS reported total revenues of EUR1,248 million and EBITDA as adjusted by the company of EUR138 million. As of 30 June 2018, WFS operated at 199 airports in 22 countries and served over 270 airlines worldwide.

Assignments:

..Issuer: Promontoria Holding 264 B.V.

.... Corporate Family Rating, Assigned B2

.... Probability of Default Rating, Assigned B2-PD

Affirmations:

..Issuer: Promontoria Holding 264 B.V.

....Backed Senior Secured Regular Bond/Debenture, Affirmed B2

Withdrawals:

..Issuer: WFS Global Holding S.A.S.

.... Corporate Family Rating, Withdrawn , previously rated B3, under review for upgrade

.... Probability of Default Rating, Withdrawn , previously rated B3-PD, under review for upgrade

Outlook Actions:

..Issuer: Promontoria Holding 264 B.V.

....Outlook, Changed To Stable From No Outlook

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 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.

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.

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

Mario Santangelo
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454

No Related Data.
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