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02 Dec 2019
Paris, December 02, 2019 -- Moody's Investors Service (Moody's) has today assigned a B2 corporate
family rating (CFR) and B2-PD probability of default rating (PDR)
to Sisal Pay S.p.A. (Sisal Pay or the company),
a company, which will be formed through the combination of the payments
business of Sisal Group S.p.A. (Sisal Group,
B1 stable) and the payments business of Banca 5 S.p.A.,
a subsidiary of Intesa Sanpaolo S.p.A. (Baa1 stable).
Concurrently, Moody's has also assigned a B2 rating to the new €530
million senior secured floating rate notes due 2026 and to be issued by
Sisal Pay S.p.A.
The outlook assigned is stable.
Net proceeds from the new notes, together with common equity and
shareholder loans, which meet Moody's criteria for equity
credit, will be used to fund the creation of the business.
Sisal Group and Banca 5's ownership will be 70% and 30%
respectively. Closing of the transaction is expected by end of
2019, subject to customary antitrust approval.
The B2 CFR reflects the (1) high Moody's-adjusted debt/EBITDA
of 6.6x at closing of the transaction decreasing to 5.8x-6.0x
over the next 12 months, (2) lack of geographic diversification
outside of Italy, (3) medium-term risks related to consumers
moving away from the proximity channel, though any impact is likely
to be gradual and partly offset by market share gains from other market
participants such as the Italian post office and banks which are reducing
their physical network as well as growth in Sisal Pay's pre-paid
card and digital businesses although the latter is loss-making
at the moment, and (4) exposure to potential regulatory changes
or governmental initiatives aimed at encouraging bank transfers or other
forms of online payment over the next years.
However, the CFR also positively reflects the company's (1)
leading market position in the Italian proximity payment sector with a
network of approximately 51,000 point of sales, (2) good growth
prospects in the pre-paid cards and digital payments markets supported
by the low penetration of cashless transactions in Italy, (3) potential
for significant cost synergies because Sisal Pay will switch the outsourcing
of Banca 5's bill payment processing system to Sisal Pay's proprietary
platform, (4) good margins as reflected by Moody's-adjusted
EBITA margin of around 18% pre-synergies and based on gross
revenue (equals to around 43% when commissions paid to merchants
are excluded), and (5) Moody's expectation that Moody's-adjusted
free cash flow/debt will be above 5% from 2020. Moody's
considers that the combination makes strategic sense and Moody's
expects that both shareholders of the company will be committed to Sisal
Pay's success and deleveraging.
Moody's forecast that Sisal Pay will delever to 5.8x-6.0x
over the next 12 months is based on the following assumptions: (1)
realization of merger synergies in 2020; (2) a reduction in the losses
of the new digital initiatives; and (3) underlying organic growth
notably in bill payments, own pre-paid cards, and merchant
services. However, these growth assumptions will be partly
offset by the loss of Banca 5's pre-paid cards partnership
with PostePay from 1 January 2020, and additional overheads related
to the set-up of the new business' own support functions.
Sisal Pay's liquidity is adequate mainly due to the large super
senior revolving credit facility (RCF) of €92.5 million available
until 2026 because cash at closing will be low at around €5 million.
There is no financial covenant attached to the RCF.
Working capital is structurally negative but could exhibit significant
variability on a weekly basis driven by the timing of cash collections
and payments. According to the company, working capital can
experience a maximum swing of €50 million, which could require
drawings under the RCF, but only for a few days.
In terms of social risks Moody's considerations include demographic
and regulatory changes leading to a shift of consumer behaviors towards
cashless transactions, although the impact of demographic changes
will likely be gradual.
As to governance risks, Moody's views Sisal Pay's capital
structure as being ring-fenced from the Sisal Group although the
new company will be consolidated within Sisal Group' audited accounts.
Sisal Pay is 70% private-equity owned (through Sisal Group),
which can have a greater propensity to favour shareholders over creditors,
but Moody's expects that Sisal Pay and Banca 5 will be committed
to the growth and success of the company as well as deleveraging.
Moody's expects related party transactions to remain limited and
conducted on an arm's-length basis. Except customary
transition service agreements for the provision of support functions,
there will be a commercial agreement between Sisal Pay and Banca 5 with
respect to transactional and banking services not contributed by Banca
5 to the new company.
The capital structure comprises a €530 million senior secured notes
and a €92.5 million super senior RCF. Both debt instruments
are secured by a weak security package, which mainly includes pledge
on shares and intercompany receivables. However, the super
senior RCF will rank ahead of the notes in an enforcement scenario under
the provisions of the intercreditor agreement. The super senior
RCF will also benefit from upstream guarantees from operating companies
accounting for at least 80% of consolidated EBITDA while the notes
will be unguaranteed.
The senior secured notes are rated B2, at the same level as the
CFR, reflecting the relatively small amount of super senior RCF
and operating companies' non-financial debt including trade
payables, pension liabilities, and leases ranking ahead due
to the absence of upstream guarantee. Payables to strategic partners
are not included in Moody's Loss Given Default (LGD) analysis because
they will be either covered by segregated cash balances or performance
bonds in a liquidation scenario.
Moody's has assigned a separate CFR to Sisal Pay to the CFR of its
majority owner, Sisal Group. This is because the documentation
of the notes sufficiently ring-fences Sisal Pay's capital
structure. There is no cross default or cross guarantees and there
are sufficient restrictions in the documentation that prevent the upstreaming
of cash from Sisal Pay unless there has been material deleveraging to
below 3.75x from c. 5.3x at closing (based on the
consolidated net leverage ratio as defined under the debt indenture).
The stable outlook reflects Moody's expectation that Moody's-adjusted
debt/EBITDA will reduce to 5.8x-6.0x over the next
12 months, a level that more comfortably positions the company within
the B2 rating, and positive free cash flow, which will strengthen
liquidity. The stable outlook assumes the company will not undertake
material debt-funded acquisitions or distribution to shareholders.
FACTORS THAT COULD LEAD TO AN UPGRADE/DOWNGRADE
An upgrade could materialize if underlying earnings growth and the realization
of merger synergies lead to: (1) Moody's-adjusted debt/EBITDA
reducing closer to 5.0x on a sustained basis, and (2) a solid
liquidity profile including Moody's-adjusted free cash flow
of around 5%.
A downgrade could materialize if weak underlying EBITDA growth or integration
issues, including lower synergies than expected lead to: (1)
Moody's-adjusted debt/EBITDA remaining sustainably above 6.0x,
or (2) weaker liquidity or negative Moody's-adjusted free
cash flow. Negative rating pressure could also occur if longer-term
demand for some of Sisal Pay's proposed business offerings,
such as prepaid cards, digital payments, or banking and other
new services, are unlikely to grow as anticipated and sufficiently
offset any future decline in the bill payment business or continued decline
in the telecom business.
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
Created through the combination of the Sisal Group's payments business
and Banca 5's payments business, Sisal Pay will be a key player
in the Italian proximity payments industry. The company generated
pro-forma gross revenue of €325 million in 2018 or net revenue
of €151 million excluding commissions paid to merchants.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
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for securities that derive their credit ratings from the support provider's
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provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
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case where the transaction structure and terms have not changed prior
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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,
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to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
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for additional regulatory disclosures for each credit rating.
Vice President - Senior Analyst
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Moody's France SAS
96 Boulevard Haussmann
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
No Related Data.
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