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Related Issuers
Rating Action:

Moody's assigns first-time Baa3 rating to Wirecard AG; outlook stable

29 Aug 2019

Frankfurt am Main, August 29, 2019 -- Moody's Investors Service ("Moody's") has today assigned a first-time Baa3 long-term issuer rating to the German payment solution provider Wirecard AG (Wirecard). Moody's has also assigned a Baa3 rating to Wirecard's €500 million announced senior unsecured notes. The outlook on all ratings is stable.

"Wirecard's Baa3 issuer rating reflects its leading position in the payment processing market, especially in Europe and in the strongly growing Asian markets and its comprehensive product portfolio in the highly competitive industry," says Dirk Goedde, an Assistant Vice President and lead analyst for Wirecard. "It also factors in the company's strong profitability and EBITDA growth as well as a high free cash flow generation ability providing good deleveraging capacity," Mr. Goedde continues. Moody's expects that Wirecard will reduce its adjusted financial leverage to 2.5x in the next 12-18 month and will maintain a capital structure on a sustained basis in line with the requirements for an investment grade rating.

RATINGS RATIONALE

The Baa3 ratings reflect as positives; (1) Wirecard's strong market position in Asia and Europe in the strongly growing industry of cashless payment solutions, (2) a well-diversified business profile in terms of customers, geographies and products, (3) its scalable software platform with comprehensive value adding services to serve convenience to its customer base, (4) its sound financial profile with very high margins driving a strong cash flow generation which allows for a swift deleveraging of the slightly elevated gross debt including the planned issuance of the convertible bond, and (5) a financial policy committed to preserve a capital structure in line with the requirements for an investment grade rating, even in a scenario of accelerated M&A activity as well as a good liquidity profile, characterized by a high cash position.

At the same time, the rating is constraint by (1) Wirecard's yet smaller scale compared to the leading US payment processors in a highly competitive market, but scale is however expected to increase over the coming years, (2) the strong growth in a dynamic market especially in foreign countries which requires a high degree of governance and risk control, (3) a constant threat of hidden competition from new market entrants or new technologies which might emerge quickly (4) inherent risk of changes in regulation and technology which might affect the business negatively and (5) the ongoing commoditization of payment processing and related pricing pressure.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects our expectation that Wirecard will generate adjusted EBITDA growth of high-teens to mid-twenties in percentage terms over the next 12-18 months while not exceeding Moody's adjusted debt to EBITDA of 3.0x including the envisaged €900 million convertible bond (Softbank) as well as the €500 million planned bond issuance which will predominantly be used for repayment of existing debt. The €900 million convertible bond (Softbank) will be used for investments in growth, repayment of existing debt and potential share buyback. The company will be able to generate high free cash flow of around €400 million in the next 12-18 months which yields in decent deleveraging capacity. Additionally, we expect the company to maintain its prudent financial policy with no elevated shareholder distributions or no major share buybacks as well as a conservative financial profile, even in a scenario of intensified M&A activity.

WHAT COULD CHANGE THE RATING UP/DOWN

Moody's could upgrade Wirecard if Moody's adjusted debt to EBITDA is sustainably near to 2x while showing a sustained track record of profitable above market growth and maintaining a strong liquidity as well as free cash flow to debt close to 20%, including the absence of major M&A activity.

Vice versa, Moody's might downgrade Wirecard when the criteria for a stable outlook are not met. Additionally, we will review the rating positioning in case the company misses the above mentioned expected growth or if there are any signs of deteriorating liquidity.

LIQUIDITY ANALYSIS

Wirecard's liquidity is strong. The company generated a high free cash flow of €371 million in the last twelve months ended in June 2019 on a Moody's adjusted basis, representing a cash conversion of 55% of Moody's adjusted EBITDA. In line with the envisaged growth of the company, we expected a further increase of free cash flow to the range of €400 million in the next 12-18 months. This is based on our assumption of a stable dividend policy (including no major share buybacks) as well as no major acquisition. The company further benefits from its high cash on balance sheet of in total €1,665 million in Moody's adjusted terms. From the total cash position of €3,048 million we exclude €1,559 million customer deposits from the banking operations, €347 million deposits from the acquiring business as these are not freely available to Wirecard as per June 30th, 2019. We furthermore include €523 million interest bearing securities and fixed deposits.

The company has access to a €1,750 million revolving credit facility due in 2024 that was drawn by €1,570 million as of end of June 2019. The documentation entails a leverage covenant with ample headroom. The planned bond issuance will be at least partially used to repay utilizations under the revolving credit facility and thus provide a further liquidity buffer. In addition, Moody's favourably notes Wirecard's intention to diversify its funding structure, considering the planned convertible bond and target unsecured bond issuance, which reduces the reliance on bank funding sources going forward. Despite this improvement of diversification, Wirecard has now some refinancing risk in 2024.

PRINCIPAL 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

Headquartered in Aschheim, Germany, Wirecard AG is an international payment solution provider covering the whole payment value chain including payment processing and risk management (71% of revenues and 86% of EBITDA as per FY 2018) as well as acquiring and issuing (29% of revenues and 14% of EBITDA). Key operating areas are Europe (45% of revenues as per FY 2018) as well as Asia Pacific (47%). Wirecard employs more than 5,600 employees of whom 48% are located in Asia Pacific, 28% in Germany and 13% in Rest of Europe as per June 30th, 2019. Around 46% of the employees are within research & development and IT followed by 22% customer service staff as per June 30th, 2019. The company has processed a transaction volume of €146 billion in the last twelve months ended in June 2019 and provided its products to more than 300,000 merchants.

Wirecard generated €2,338 million revenues and a Moody's adjusted EBITDA of €680 million in the last twelve months ending in June 2019. The company is listed in the German DAX and no shareholder exceeding 10% ownership with the CEO of Wirecard, Dr. Markus Braun, holding 7.05% of shares.

REGULATORY DISCLOSURES

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 same series, category/class of debt, security 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.

Dirk Goedde
Asst Vice President - Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Christian Hendker, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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