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Rating Action:

Moody's changes outlook on Kantar's ratings to negative

29 May 2020

NOTE: On June 2, 2020, the press release was corrected as follows: In the second sentence of the second paragraph the word “outstanding” was added to the amount description for the Senior Unsecured notes issued by Summer (BC) Holdco A S.a r.l.. Revised Release follows.

London, 29 May 2020 -- Moody's Investors Service, ("Moody's") has today changed the ratings outlook to negative from stable for Kantar Global Holdings S.à r.l. (Kantar Group Holdings; "Kantar"), previously Summer (BC) Lux Consolidator S.C.A. , the top-entity of the ring-fenced group that controls Kantar (a global market leading data, research, consulting and analytics business), after the near-full completion of Bain Capital's acquisition of a 60% stake in the business in December 2019 (balance of 40% is held by WPP plc whose debt is rated Baa2, negative). The outlook has also been changed to negative for all of Kantar's rated subsidiaries.

At the same time, Moody's has affirmed the B2 corporate family rating (CFR) and B2-PD probability of default rating (PDR) at Kantar Group Holdings. The agency has also affirmed the B1 ratings for the USD400 million Senior Secured Revolving Credit Facility (RCF; due 2026) and for the EUR725 million and USD280 million Senior Secured Term Loans B issued by Kantar's subsidiaries Summer (BC) Bidco B LLC and Summer (BC) Holdco B S.à r.l. , the B1 rating for the EUR1.0 billion Senior Secured Notes due 2026 issued by Summer (BC) Holdco B S.a r.l. and the Caa1 rating for the outstanding EUR 428 million Senior Unsecured notes issued by Summer (BC) Holdco A S.a r.l. Moody's also assigns B1 ratings to new tranches of USD70 million and EUR70 million issued by Summer (BC) Bidco B LLC and Summer (BC) Holdco B S.à r.l..

The change in ratings outlook to negative reflects the significant pressures from the global outbreak of coronavirus on Kantar's revenue and profitability.

"We expect the Moody's adjusted gross leverage for Kantar to peak at over 8.0x in 2020 currently assuming a 18%-23% decline in revenues and a USD180-240 million decline in Moody's adjusted EBITDA versus our previous forecasts for 2020", says Gunjan Dixit, a Moody's Vice President -- Senior Credit Officer and lead analyst for Kantar.

"While 2021 will likely see some recovery in the business, the negative outlook captures the risk of weaker than currently anticipated 2020 as well as a slower recovery in 2021 particularly in the Insights division" adds Ms. Dixit.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

In 2019, Kantar performance was largely in line with Moody's expectations with reported revenue of approximately USD 3.9 billion (versus the Moody's forecast of USD4.1 billion) and Moody's adjusted EBITDA of USD535 million. The slight deviation in revenue performance was driven by negative FX effects while constant currency revenue grew by approximately 1%, in line with Moody's assumptions.

Revenue weakness in 2020 will primarily be driven by the significant pressure in Kantar's Insights businesses, which accounted for around 50% of the revenues in 2019. The agency expects declines in some of these activities to be substantive, of up to 50% of the revenue in 2020. Insights (Brand Tracking and Other Domains) is strongly correlated with the underlying weakening economic activity, as clients reduce market research budgets when the economy weakens, particularly in those industries which are also affected by the current mobility restrictions (such as travel, retail and auto), to which the company has some exposure. More positively, Kantar has sizeable exposure the Consumer Packaged Goods and Food and Beverage industry amongst its Designated Clients (at 46% of the $1.5 billion of group's Constant Currency Gross Margin from Designated Clients in 2019), which has in the past been the key driver for the strain on its revenue, but is proving to be somewhat resilient in the coronavirus driven economic upheaval.

In addition, Moody's expects a decline in some of the Specialist businesses, such as Consulting activities and Public, respectively affected by the weakening economic environment and by the social restrictions which are leading to some delays and re-phasing in the delivery of public projects.

The agency does not expect a material negative impact from the coronavirus related disruptions on Kantar's Data businesses as these revenues are largely syndicated and backed by multi-year contracts.

Moody's currently expects the company's EBITDA (Moody's adjusted) to be lower by around USD180-240 million versus its previous forecast of USD610 million for 2020. EBITDA impact is mitigated by cost savings including hiring freezes, adoption of furlough schemes, lower bonus payments and T&E expenses, cuts in executive pay and the adoption of 4 days working weeks in certain markets. The meaningful drop expected in EBITDA signals that Kantar's gross leverage (as adjusted by Moody's) will come under strain in 2020. Moody's now expects an adjusted gross debt/ EBITDA of over 8.0x in 2020 (compared to 6.0x at the end of 2019). Additionally, the generation of cost savings through the transformational program, which constitutes a significant driver of EBITDA growth, carries meaningful execution risks.

Moody's considers Kantar's liquidity as sufficient. The company had cash and cash equivalents of USD700 million at the end of March 2020 (net of the USD275 million of the remaining proceeds due to be paid to WPP for Kantar's disposal transaction), after having drawn the available RCF of USD388 million (net of an ancillary carve out of USD12 million) as a precautionary measure. Moody's expects cash flow generation to be negative in 2020 but the cash on company's balance sheet will be sufficient to cover its cash needs. Moody's expects the company to return to positive cash flow generation in 2021. The RCF is constrained by a net leverage covenant (of 7.2x Net Senior Secured Leverage to be tested when the drawings under the RCF net of cash exceed 40%) which in the company's current expectation is unlikely to be tested in 2020 considering its healthy cash position.

The group's senior secured Term Loans B and RCF, issued by Summer (BC) Bidco B LLC and Summer (BC) Holdco B S.à r.l., are secured by share pledges, intercompany receivables and bank accounts, and guaranteed by operating subsidiaries accounting for 80% of the Consolidated EBITDA as defined in (and subject to the guarantor coverage adjustments specified in) the Senior Facilities Agreement. The Senior Secured Notes issued by Summer (BC) Holdco B S.à r.l. benefit from largely the same security and guarantees as the Term Loan B and RCF. We have ranked the company's bank debt and the senior secured notes, highest in the priority of claims, together with the company's trade claims, followed by the senior unsecured notes. This results in a B1 rating for the group's secured debt, one notch higher than the corporate family rating. The unsecured notes issued by Summer (BC) Holdco A S.à r.l. are rated Caa1.

ESG CONSIDERATIONS

The rapid and widening spread of the coronavirus outbreak in 2020, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The market research sector has been one of the sectors adversely affected by the shock given its sensitivity to consumer demand and sentiment. The combined credit effects of these developments are unprecedented. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on Kantar of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

From a corporate governance perspective, Moody's factors in the potential risk (heightened after the acquisition by Bain Capital) usually associated with private equity ownership, which might lead to a more aggressive financial policy, and the uncertainty in the future leadership of the company, following the unexpected resignation and departure of the CEO Eric Salama in February 2020 . Moody's understands that the search for a new CEO is ongoing.

RATING OUTLOOK

The negative outlook reflects the risk of (1) a steeper than currently expected fall in revenues and EBITDA in 2020 and (2) a slower than currently anticipated recovery in the business in 2021.

Stabilization of outlook will require some recovery in the company's business from second half of 2020 such that 2021 sees the business trends normalizing in a way that the company's gross leverage (Moody's adjusted) begins to trend towards the 6.5x.

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

Positive pressure on the ratings is unlikely over the next 12-18 months. It could develop over time, if (1) Kantar demonstrates sustained moderate revenue and EBITDA growth; (2) its gross debt/EBITDA (Moody's-adjusted) decreases sustainably and is maintained well below 5.5x; and (3) the company's Moody's adjusted free cash flow (FCF)/ Debt ratio improves towards 10%.

Downward ratings pressure would materialize if (1) Kantar's revenues and EBITDA come under further pressure beyond 2020 (2) its gross leverage (Moody's-adjusted gross debt/EBITDA) is no longer expected to reduce below 6.5x during 2021; and/ or (3) its free cash flow (FCF)/ debt (Moody's-adjusted) declines materially beyond 2020. There would also be downward rating pressure if the company's liquidity were to significantly deteriorate.

LIST OF AFFECTED RATINGS

Assignments:

..Issuer: Summer (BC) Bidco B LLC

....Senior Secured Bank Credit Facility, Assigned B1

Affirmations:

..Issuer: Kantar Global Holdings S.a r.l.

.... Probability of Default Rating, Affirmed B2-PD

.... Corporate Family Rating, Affirmed B2

..Issuer: Summer (BC) Bidco B LLC

....Senior Secured Bank Credit Facility, Affirmed B1

..Issuer: Summer (BC) Holdco A S.a r.l.

....Senior Unsecured Regular Bond/Debenture, Affirmed Caa1

..Issuer: Summer (BC) Holdco B S.a r.l.

....Senior Secured Regular Bond/Debenture, Affirmed B1

Outlook Actions:

..Issuer: Kantar Global Holdings S.a r.l.

....Outlook, Changed To Negative From Stable

..Issuer: Summer (BC) Bidco B LLC

....Outlook, Changed To Negative From Stable

..Issuer: Summer (BC) Holdco A S.a r.l.

....Outlook, Changed To Negative From Stable

..Issuer: Summer (BC) Holdco B S.a r.l.

....Outlook, Changed To Negative From Stable

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

Kantar Global Holdings S.à r.l. (Kantar Group Holdings), previously Summer (BC) Lux Consolidator S.C.A. , is the top-most entity of the restricted group that owns Kantar. Kantar is a global data, research, consulting and analytics business which offers a complete view of consumer behaviour in over 100 countries. In its fiscal year ended 31 December 2019, Kantar reported revenue of USD3.9 billion and EBITDA of USD535 million.

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.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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.

Gunjan Dixit
VP - Senior Credit Officer
Corporate Finance Group
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

Peter Firth
Associate Managing Director
Corporate Finance 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

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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