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Rating Action:

Moody's assigns B2 ratings to Aguila 3 S.A./Swissport (Switzerland)

17 Jan 2011

London, 17 January 2011 -- Moody's Investors Service has today assigned a B2 corporate family rating (CFR) and a B2 probability-of-default rating (PDR) to Aguila 3 S.A. ("Swissport"), the parent company of Swissport borrowing group. Concurrently, Moody's has assigned a provisional (P)B2 rating to Swissport's CHF750 million worth of seven-year senior secured notes. The outlook on all ratings is stable.

The rating assignment follows the announcement by PAI partners on 2 November 2010 that it had agreed to acquire the Swissport group from Ferrovial for a total enterprise value of approximately CHF1.2 billion. The funds will be escrowed subject to completion of the transaction, which is scheduled to close in February 2011, subject to certain conditions and approvals. The rated debt will be used to fund the acquisition, in conjunction with approximately CHF450 million of equity.

RATINGS RATIONALE

"The B2 rating reflects Swissport's relatively solid business profile," says Tanya Savkin, Moody's lead analyst for Swissport. "Although its revenue is dependent on the airline industry cycle, the majority of Swissport's ground-handling services -- which account for approximately 80% of its revenue -- is linked to turnarounds, i.e. number of flights, providing a "buffer" effect between passenger volumes and airline cyclicality," continues Ms Savkin. "The company's business profile is further supported by customer and geographical diversification, longer-term agreements with key customers and the operational effectiveness of the business, which proved to be relatively resilient during the global economic downturn."

However, Moody's notes that Swissport's financial metrics are weakened by high leverage of 5.9x (Moody's adjusted, pro forma for the transaction), placing the company in the single-B rating category. Moody's expects only modest de-leveraging on a gross debt basis from Swissport in 2011-2012, although the rating agency believes that the company will achieve positive cash flow generation and build up cash on the balance sheet.

Moody's expects that Swissport's scale, combined with its local presence, will continue to benefit from the outsourcing trend and the recent cyclical rebound in the airline industry. Each year, Swissport handles passenger volumes in the region of 70 million and approximately 2.8 million tonnes of cargo for around 650 passenger airlines and freight carriers. In terms of revenue and the number of stations in which it operates, the company is positioned as a world leader, while it is no. 2 in terms of total cargo tonnage handled.

In Moody's view, Swissport's liquidity profile is reasonable, supported by the undrawn CHF200 million revolving credit facility. The net leverage maintenance financial covenant under the revolving credit facility will be set with a minimum headroom of 30% in the first year and 35% thereafter.

The stable outlook reflects Moody's expectation that (i) there will be a continued recovery in the market; and (ii) that Swissport will continue to exhibit operational efficiency and positive cash flow generation.

Positive pressure on the ratings could arise if Swissport's credit metrics were to improve as a result of a stronger-than-expected operational performance, leading to a debt/EBITDA ratio of around 5.0x, a free cash flow/debt ratio of around 5% and a (EBITDA-Capex)/Interest expense ratio above 2.0x. Downward pressure could occur as a result of: (i) a deterioration in the company's debt/EBITDA ratio to above 6.0x; (ii) free cash flow turning negative; and (iii) (EBITDA-Capex)/Interest expense ratio falling below 1.5x.

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, Moody's will endeavour to assign a definitive rating to the notes. A definitive rating may differ from a provisional rating.

The principal methodologies used in this rating were Global Business & Consumer Service Industry Rating Methodology published in October 2010, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Headquartered in Zurich, Swissport is the largest independent ground-handling services company in the world. The company employs around 32,000 personnel in 176 airports in 38 countries worldwide, with around 57% of 2009 revenue derived from Europe, 28% from North America, 9% from Latin America, 5% from Africa and the remaining 1% from Asia. For the period of LTM September 2010 Swissport reported revenues and adjusted Ebitda of approximately CHF1.7 billion and CHF164 million, respectively.

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London
Tanya Savkin
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Chetan Modi
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns B2 ratings to Aguila 3 S.A./Swissport (Switzerland)
No Related Data.
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