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Rating Action:

Moody's assigns Ba2 CFR to Altran Technologies, stable outlook

15 Jan 2018

London, 15 January 2018 -- Moody's Investors Service (Moody's) has assigned a first-time Ba2 corporate family rating (CFR) to Altran Technologies (Altran), a leading engineering and R&D services company. The rating agency has concurrently assigned a Ba2-PD probability of default rating and Ba2 ratings to the senior secured term loan of EUR2,125 million equivalent due 2025 and to the senior secured revolving credit facility of EUR250 million due 2023 to be borrowed by Altran. The outlook on all ratings is stable.

Altran plans to use the proceeds from the new term loan and the EUR250 million senior secured equity bridge term loan (unrated) to finance the acquisition of Aricent Technologies (Aricent, B3 stable) for EUR1.7 billion, refinance most of Altran's outstanding debts and pay transaction fees. Altran also expects to complete the equity rights issue of EUR750 million by the end of June 2018 and subsequently use the proceeds exclusively to repay the EUR250 million senior secured equity bridge term loan and EUR500 million of the EUR2,125 million equivalent senior secured term loan.

Today's rating action reflects the following drivers:

- Moody's estimates that Altran's leverage is high for the rating category at 4.6x based on the last twelve months to 30 June 2017 (LTM June-2017) pro forma for the acquisition of Aricent and the expected EUR750 million right issue;

- The rating agency assumes that the company's planned EUR750 million rights issue is successful with the proceeds being used exclusively to repay debt;

- Moody's takes into account Altran's publicly stated commitment to reduce its net leverage to below 2.5x within two years after the acquisition, which approximately equates to Moody's-adjusted leverage of 3.5x.

Issuer: Altran Technologies

Assignments:

.... Probability of Default Rating, Assigned Ba2-PD

.... Corporate Family Rating, Assigned Ba2

....Senior Secured Bank Credit Facilities, Assigned Ba2 (LGD4)

Outlook Action:

....Outlook, Assigned Stable

RATINGS RATIONALE

"The acquisition of Aricent will enhance Altran's already leading market position and high level of industry diversification, two important credit positives. We expect that the company will delever to below 4.0x, which is in line with our expectation for the Ba2 rating, within the next 12-18 months based on the mid-single-digit organic revenue growth rates and margin improvement driven by the implementation of efficiencies and synergies from the acquisition", says Andrey Bekasov, AVP and Moody's lead analyst for Altran.

Altran's Ba2 CFR reflects the company's: 1) leading position as a provider of engineering and R&D services to companies from various industries, which reduces its concentration risk to a particular industry; 2) positive underlying fundamental industry trends, including increasing outsourcing and continued focus on R&D; and 3) moderate free cash flow generation supported by low capex requirements.

Conversely, the rating reflects the company's: 1) high leverage, as measured by Moody's-adjusted debt/EBITDA, of 4.6x pro forma for the acquisition of Aricent and the rights issue with expected deleveraging below 4.0x within the next 12-18 months; 2) high customer concentration across its divisions (compared to a broader business services peer group); 3) exposure to cyclical end markets with pricing pressures; and 4) reliance on continuous recruitment of staff because of a high staff turnover rate, which is nevertheless average for the industry.

RATING OUTLOOK

The stable outlook reflects our expectation that Altran's leverage, as measured by Moody's-adjusted debt/EBITDA, will trend below 4.0x within the next 12-18 months.

FACTORS THAT COULD LEAD TO AN UPGRADE

- The company were to reduce leverage, as measured by Moody's-adjusted debt/EBITDA, below 3.0x sustainably; and

- Moody's-adjusted RCF/Net ratio were to increase to high-teen digits;

- The company were to increase profitability, as measured by Moody's-adjusted EBITA margin, towards 20%; and

- The company were to meaningfully increase its scale, as measured by revenue

FACTORS THAT COULD LEAD TO A DOWNGRADE

- If the EUR750 million rights issue did not go ahead as planned and the company did not decrease debt by the same amount as expected;

- The company were to fail to reduce leverage, as measured by Moody's-adjusted debt/EBITDA, below 4.0x within the next 12-18 months;

- Moody's-adjusted RCF/Net ratio were to fail to increase to mid-teen digits;

- The company were to lose large customers; or

- Cash flow were to turn negative

LIQUIDITY

Altran will have adequate liquidity supported by expected positive free cash flow of around EUR100 million in 2018; cash of EUR258 million at closing of the acquisition of Aricent; and EUR250 million revolving credit facility (RCF), expected to remain undrawn. Moody's notes intra-quarterly volatility of cash flow with majority of cash flow generated in the second half of the year. The company will have only one covenant for the benefit of the RCF lenders only and tested when it is drawn by or more than 40% (a "springing" covenant). Moody's expects that the company will remain well in compliance with that covenant if it is tested.

STRUCTURAL CONSIDERATIONS

The Ba2 ratings of the EUR2,125 million equivalent senior secured term loan and the EUR250 million RCF in line with the Ba2 CFR and Ba2-PD reflect a 50% corporate family recovery rate assumption.

METHODOLOGY

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.

COMPANY PROFILE

Altran, headquartered in Neuilly-sur-Seine, France, is a leading engineering and R&D services company with revenue of around USD3.4 billion equivalent pro forma for the acquisition of Aricent. The company has been listed on Euronext Paris exchange since 1987. It is a component of the CAC Mid 60 equity index.

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.

Andrey Bekasov
Asst Vice President - 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

Richard Etheridge
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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