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Rating Action:

Moody's changes outlook on Atalian's Caa1 CFR to positive from negative

23 Nov 2020

Paris, November 23, 2020 -- Moody's Investors Service ("Moody's") has today affirmed the ratings of La Financiere ATALIAN S.A.S. ("Atalian" or the "company"), a leading provider of cleaning and facility management services based in France, including the corporate family rating (CFR) of Caa1, the probability of default rating (PDR) of Caa1-PD, and the Caa2 ratings on the guaranteed senior unsecured notes due 2024 and 2025. The outlook was changed to positive from negative.

"The positive outlook reflects our expectations that revenues and earnings will continue to improve over the next 12-18 months and result in a strengthening of the credit metrics so that they are more commensurate with a B3 CFR, notably Moody's-adjusted debt/EBITDA of around 7.0x or below, and positive free cash flow", says Eric Kang, a Moody's Vice President - Senior Analyst and lead analyst for Atalian. "We expect margins to remain above the level of 2019 going forward, however, there is still uncertainty as to the pace of revenue recovery and the level of margins once the benefits of partial unemployment schemes subside", adds Mr Kang.

RATINGS RATIONALE

The Caa1 CFR reflects the company's weak credit metrics at the time of the coronavirus outbreak, notably the elevated Moody's-adjusted debt/EBITDA of around 8.8x at year-end 2019 (including restructuring costs, provisions, and deconsolidated factoring) and negative Moody's-adjusted free cash flow of €59 million in 2019 (after neutralization of the change in deconsolidated factoring). There is also uncertainty as to the pace of revenue recovery given the long-lasting impact coronavirus outbreak that Moody's expects on certain end markets such as hospitality and travel, or activities such as multi-technical services and catering. Additionally, it remains unclear as to the level of margins once the benefits of partial unemployment schemes subside. Moody's currently expects margins to remain above the level of 2019 going forward, reflecting underlying improvements and Moody's expectations of further cost savings related to initiatives implemented before the coronavirus outbreak.

However, Moody's believes that the impact of the coronavirus outbreak on Atalian's trading and liquidity was not as material as the rating agency's initial expectations in April 2020, because of less severe lockdowns and stronger benefits from governmental support schemes. Atalian's operating and financial performance since the coronavirus outbreak has been overall more resilient than other rated facility management peers, reflecting a more favourable activity mix as well as the results of actions taken by the new management team to address operational issues.

As a result, the rating agency expects Moody's-adjusted debt/EBITDA will reduce to around 7.5x in 2020 as opposed to an increase to 9.5x previously. Moody's expects leverage to reduce further to around 7.0x in 2021, driven by a recovery in revenue towards the level of 2019 and a stabilisation of margins at around 4.5% of revenue based on Moody's-adjusted EBITA, which is broadly equivalent to 8% of revenue based on management EBITDA.

Moody's expects Atalian to maintain an adequate liquidity profile over the next 12-18 months. The rating agency forecasts positive Moody's-adjusted free cash flow of around €65 million in 2020, which benefits from the deferral of €26 million social charges and tax payments, which will be paid the following year. In 2021, Moody's expects free cash flow to be around breakeven because of these deferred payments.

Liquidity is also supported by cash balances of €185 million and €70 million available under the €103 million revolving credit facility (RCF) maturing in April 2023 as of end of September 2020. The company also has €51 million available under its factoring facilities of c.€218 million in aggregate, including a GBP27 million facility in the UK, which is renewed annually. The other factoring facility expires in September 2021. The senior unsecured notes mature in May 2024 and May 2025. Moody's also expects the company to maintain ample headroom under the net senior secured leverage attached to the RCF and set at 1.75x.

STRUCTURAL CONSIDERATIONS

The senior notes due 2024 and 2025 rank pari passu. The notes are unsecured and guaranteed on a senior basis by Atalian S.A.S.U., Atalian Europe S.A., and Atalian Global Services UK 2 Limited, although obligations of certain guarantors are contractually limited because these subsidiaries of La Financiere ATALIAN S.A.S. are holding companies that do not generate any significant revenues. The RCF benefits from guarantees from the same entities and Atalian Cleaning S.A.S. which also guarantees the senior notes due 2024 but with limitations.

The notes are rated Caa2, one notch below the CFR, reflecting their structural subordination to non-debt liabilities at the operating subsidiaries, including trade payables. Additionally, the RCF has a priority claim over the notes given it has share pledges over certain intermediary holding companies of Atalian, namely Atalian Cleaning S.A.S., Atalian Proprete S.A.S., Atalian Europe S.A., Atalian Global Services UK 2 Limited, and Servest Limited.

RATIONALE FOR THE POSITIVE OUTLOOK

The positive outlook reflects the less severe effect of the coronavirus outbreak on the company's operating performance and liquidity than initially anticipated by Moody's. At the same time, it also reflects the uncertainty as to the pace of revenue recovery and the level of margins once the benefits of partial unemployment schemes subside. If Moody's adjusted EBITA margins are lower than Moody's expectations this will increase leverage but also likely lead to negative free cash flows.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's will consider upgrading the ratings if a continued improvement in operating performance leads to Moody's-adjusted debt/EBITDA reducing to below 7.0x, Moody's EBITA/interest remains well above 1.0x, and the company maintains a solid liquidity profile including positive Moody's-adjusted free cash flow.

Negative rating action could materialize if the company's operating performance or liquidity weakens from current levels, resulting in an unsustainable capital structure. This would be evidenced by Moody's-adjusted debt/EBITDA above 8.0x, weak Moody's-adjusted EBITA/ interest cover of below 1.0x, or sustained negative free cash flow.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Headquartered in France, Atalian is a leading provider of cleaning and facility management services. The company operates throughout 32 countries and had revenues of c.€3.1 billion in 2019.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

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.

Eric Kang, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Jeanine Arnold
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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