First-time rating assignment
Milan, April 06, 2011 -- Moody's Investors Service has today assigned a provisional (P)Ba3
corporate family rating (CFR) and probability of default rating (PDR)
to CMA CGM S.A. Concurrently, Moody's has assigned
a provisional (P)B2 senior unsecured rating and a Loss Given Default (LGD)
assessment of LGD5 - 85% to the company's proposed
issuance of USD800 million worth of senior unsecured notes due in 2017
and in 2019. The outlook on the ratings is stable.
The assigned ratings are provisional because they are contingent on CMA CGM's successful conclusion of its financial restructuring and issuance of an USD800 million bond offering by the end of April 2011. Moody's
issues provisional ratings in advance of the final sale of securities,
and these ratings represent only Moody's preliminary opinion on
the transaction. Upon a conclusive review of the transaction and
associated documentation, Moody's will endeavour to assign
a definitive CFR and rating to the securities. A definitive rating
may differ from a provisional rating.
"The (P)Ba3 CFR reflects the current weakness of CMA CGM's
credit metrics despite its strong business profile," says
Marco Vetulli, Vice President -- Senior Credit Officer and
lead analyst for CMA CGM. "Moody's expects that the
company's still sizeable capital investment plan will limit its
free cash flow generation and, as result, that its credit
metrics will remain weak in the near future, thus constraining the
upside potential of the rating in the near term," continues
"In addition, the rating reflects the need for CMA CGM to
reinforce its capital structure in order to meet the contrasting challenges
of (i) improving its financial profile (e.g. deleveraging);
and (ii) making the necessary investments to maintain its current market
share in a more mature operating environment," adds Mr Vetulli.
The entry of a new shareholder (the Turkish group Yildirim) represents
the company's first step towards diversifying its capital structure,
but in Moody's view this is not sufficient on its own to achieve
the required improvement.
More positively, the rating reflects CMA CGM's strong business
profile due to its leading market positions gained from the successful
commercial and operational strategies implemented by its management and
good cash flow generation.
In addition, the rating is supported by the company's strong
asset base, with a fleet market value of approximately USD4.9
billion as of the end of December 2010, according to independent
Moreover, as a general factor that affects the industry, Moody's
has taken into account the reliance of container shipping operators on
short-term contracts, which imply a greater exposure to cyclical
trends, although CMA CGM has a meaningful amount of revenues under
contract representing good revenue visibility. This represents
a negative factor for the rating of container shipping companies,
given their high operating leverage and, therefore, high degree
of sensitivity to revenue shifts (as illustrated by the 2009 recession).
The provisional (P)B2 rating (LGD5 - 85%) on the senior
unsecured notes is two notches lower than CMA CGM's CFR.
The differential reflects that the proposed bond issuance, which
will be subordinated to all of CMA CGM's secured debt, will
rank "pari passu" with senior unsecured debt already in the
company's capital structure. Moreover, the subordinated
bonds redeemable in preferred shares (Obligations Remboursable en Actions
de Prèfèrence, or "ORA") subscribed for
by Yildirim will be subordinated to all of CMA CGM's senior unsecured
debt, including the company's proposed notes.
The stable outlook on CMA CGM's ratings reflects Moody's view
that after the market recovery, the agreement signed with Yildirim
Holding and the signing of the restructuring agreements with the banks,
CMA CGM will have stabilised its capital structure and liquidity profile.
Moreover, Moody's notes that the container shipping market
is expected to report a satisfactory year in 2011 (although it will be
less exceptional than in 2010); therefore, the rating agency
expects CMA CGM to perform relatively well in such conditions.
The ratings and outlook also reflect Moody's expectation that,
going forward, CMA CGM will maintain: (i) financial leverage,
measured in terms of debt/EBITDA, of around 5.5x (as adjusted
by Moody's for operating leases and pension items); (ii) a
retained cash flow (RCF)/net debt ratio above 10%; and (iii)
a free cash flow/debt ratio above 3%.
Given that CMA CGM's immediate target will be to demonstrate its
ability to maintain an adequate financial profile, Moody's
considers it unlikely that any upward pressure would be exerted on the
company's rating in the short term. However, upward
pressure could materialise over time as a result of: (i) a reduction
in the company's financial leverage below 4.0x; (ii)
an RCF/net debt ratio above the mid-teens; and (iii) an increase
in its EBIT/interest coverage ratio above 3.0x on sustainable basis.
Downward pressure on the rating could potentially result from deteriorating
market conditions leading to financial leverage increasing towards 6.0x
and/or EBIT/interest expense coverage falling below 1.5x,
together with weak or negative free cash flow and/or a deterioration in
CMA CGM's liquidity profile.
The ratings assigned by Moody's today are as follows:
- Provisional CFR of (P)Ba3
- Provisional PDR of (P)Ba3
- Provisional senior unsecured rating on the proposed USD800 million
notes issuance of (P)B2, LGD5 - 85%.
Moody's last rating action on CMA CGM was implemented on 8 June
2009, when the rating agency withdrew all of the company's
ratings for business reasons, at its own request.
The principal methodologies used in this rating were Global Shipping Industry
published in December 2009, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Headquartered in Marseille, France, CMA CGM is the third-largest
container shipping company in the world (measured in twenty-foot
equivalent units, or "TEU"). The company generated
revenues of around USD15 billion for the year ended 31 December 2010.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not 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.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Italia S.r.l
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Italia S.r.l
Moody's assigns (P)Ba3 rating to CMA CGM; outlook stable (France)
Corso di Porta Romana 68