NOTE: On December 6, 2017, the press release was corrected as follows: In the debt list, the amount of the Backed Senior Secured First Lien Credit Facility of Financiere CEP (France) was changed to 469.61M. Revised release follows.
London, 01 December 2017 -- Moody's Investors Service has today assigned a B1 Corporate Family Rating
("CFR") to Financiere Holding CEP (France) ("CEP")
and a Probability of Default Rating (PDR) of B1-PD. The
outlook is negative. Moody's has also assigned a (P)B1 rating
to the proposed EUR590 million senior secured first lien term loan issued
by CEP and Financiere CEP (France), a (P)B3 rating to the proposed
EUR120 million senior secured second lien term loan issued by CEP,
and a (P)B1 rating to the proposed EUR40 million revolving credit facility
to be issued by Financiere CEP (France).
Financiere Holding CEP (France) will use the proceeds from the debt issuance
to repay existing debt obligation and partially repay an existing shareholder
loan.
Moody's issues provisional ratings in advance of the final sale
of securities and these reflect Moody's credit opinion regarding
the planned issuance only. Upon a conclusive review of the final
documentation and terms and conditions of the issuances, Moody's
will endeavour to assign definitive ratings. A definitive rating
may differ from a provisional rating.
A complete list of ratings affected by this rating action is available
at the end of the press release.
RATINGS RATIONALE
Corporate Family Rating
The B1 CFR on CEP reflects the group's high leverage, partly
mitigated by a leading position in the French loan insurance market and
growing position in the credit brokerage market, very high profitability
levels, a strong resilience of revenue streams and cash flows and
a growing, although still limited, diversification.
Moody's views CEP's high leverage to be the one of the key
constraints of the ratings. Following the proposed debt issuance,
CEP's debt amount will significantly increase to EUR710 million
at year-end 2017 from EUR444 million (excluding shareholders loans)
at year-end 2016. This results in an expected Debt-over-EBITDA
(leverage) ratio of around 6x at year-end 2017, although
Moody's expects this leverage ratio to reduce over the next 24 months.
According to Moody's, reduction in leverage will come mostly
from expected growth in EBITDA as the group continues to grow in the loan
insurance segment (both in France and internationally) and in the credit
brokerage segment, and, to a lesser extent, from the
cash sweep mechanism to be embedded in the senior secured loan.
Commenting on the business profile, Moody's says that CEP
has a leading position in brokerage services for credit protection insurance
in France, with a 25% market share. Moody's
believes that the strong know-how and good reputation of the group
protects CEP's position in this market despite of the incoming regulatory
changes and the development of individual credit protection insurance
(CPI). CEP has an historical leading position in the group insurance
segment but the group has gained a strong market share also in the individual
insurance market, which is quickly growing in France. Moreover,
the group developed a good position in the French credit brokerage segment,
with a 9% market share before ACE Credit acquisition, mainly
through acquisitions. Nevertheless, Moody's believes
that CEP's business profile is still constrained by its relative
small size as an insurance brokerage firm and the still limited business
and geographical diversification.
As regards to profitability, Moody's says that CEP's
EBITDA margin is very strong (57% in 2016 on a 3-year average
and on a Moody's adjusted basis). Moody's expects the
EBITDA margin to remain above 50% in the next 12-18 months
despite the development in lines of businesses with lower margins such
as credit brokerage. Furthermore, Moody's sees CEP's
strong resilience of revenue streams and cash flows as one of its key
strengths. This is due to the long-term nature and periodic
payments of loan insurance policies, which provide CEP with a long-term
stream of revenues, as well as the multi-year agreements
(from 2 to 7 years) signed with the group's largest counterparties,
ensuring CEP to intermediate all the business underwritten by these counterparties
for several years.
Outlook
The negative outlook reflects the increase in leverage after the planned
issuances and the risks that CEP may not be able to reduce its leverage
ratio below 5.5x as quickly as expected. Moody's mentions
that reduction in leverage will be predominantly dependent on planned
growth in EBITDA in the next 12-24 months. According to
Moody's, CEP's revenues and profits may be pressurised
by headwinds from recent changes in legislation such as the Bourquin amendment
to the Sapin II law, which will allow individuals to churn their
loan insurance policy at any time. In addition, growth in
credit brokerage has relied on external growth which carries some execution
risk. CEP acquired recently Empruntis (in 2015), Immopret,
Ceprima, Alto Informatique (in 2016) and expects to close the acquisition
of ACE Credit (by end 2017). All expected synergies and productivity
gains from these acquisitions have not yet emerged.
Probability of Default and Debt ratings
The (P)B1 rating on the proposed EUR590 million senior secured first lien
term loan, (P)B3 rating on the proposed EUR120 million senior secured
second lien term loan, and (P)B1 rating on the proposed EUR40 million
revolving credit facility reflect our view of the probability of default
of the CEP Group, along with our loss given default (LGD) assessment
of the debt obligations and the absence of strong covenants. The
difference in ratings between the senior secured first lien term loan
and the senior secured second lien term loan reflects the subordination
of the second lien debt over the first lien debt.
Moody's expects to convert the provisional ratings of the proposed
debts and revolving credit facility upon the launch of the transaction,
contingent upon the receipt and review of the final documentation.
Moody's treats the shareholder loan as equity in its analysis.
--- RATING DRIVERS ---
Factors that could lead to a stabilisation of the outlook include:
(i) leverage reducing to or below 5.5x EBITDA, or (ii) material
increase in CEP's diversification, geographically or by business
line, without a material reduction of the EBITDA margin.
The factors that could lead to a downgrade of CEP's corporate family
rating include: (i) leverage remaining sustainably above 5.5x,
or (ii) significant reduction in EBITDA margin.
RATINGS LIST
Issuer: Financiere CEP (France)
..Assignment:
....Backed Senior Secured EUR40M Revolving
Credit Facility, assigned (P)B1
....Backed Senior Secured EUR 469.61M
First Lien Credit Facility, assigned (P)B1
Outlook assigned: Negative
Issuer: Financiere Holding CEP (France)
....Corporate Family Rating, assigned
B1
....Probability of Default Rating, assigned
B1-PD
....Backed Senior Secured EUR120M Second Lien
Credit Facility, assigned (P)B3
....Backed Senior Secured EUR120.39
First Lien Credit Facility, assigned (P)B1
Outlook assigned: Negative
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Insurance Brokers
and Service Companies published in September 2017. Please see the
Rating Methodologies page on www.moodys.com for a copy of
this methodology.
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.
Benjamin Serra
VP - Senior Credit Officer
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Antonello Aquino
Associate Managing Director
Financial Institutions 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
