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Rating Action:

Moody's changes rating outlook on Brussels Airport to negative from stable

31 Mar 2020

Paris, March 31, 2020 -- Moody's Investors Service, ("Moody's") today changed the outlook on Brussels Airport Company NV/SA ("BAC")'s Baa1 guaranteed senior secured rating and (P)Baa1 long-term guaranteed senior secured rating for the company's Euro Medium Term Note programme to negative from stable.

A full list of affected ratings is provided towards the end of this press release.

RATINGS RATIONALE

The rapid and widening spread of the coronavirus (COVID-19) outbreak, the 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 combined credit effects of these developments are unprecedented. The airport sector is among the most significantly affected by the shock given its exposure to travel restrictions and sensitivity to consumer demand and sentiment.

Moody´s regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety that lead to severe restrictions to air travel, cancellation of airline routes and closing of borders, as well as enhanced health and safety standards and regulation potentially resulting in additional compliance expenses and potential non-compliance costs in the form of fines.

Moody's base case assumption is that the coronavirus pandemic will lead to a period of severe cuts in passenger traffic over the upcoming weeks but that there will be a gradual recovery in passenger volumes starting by the third quarter 2020.

Unlike previous negative shocks such as the SARS epidemic in 2003, the prospects for traffic rebound is more uncertain because (1) travel restrictions in some form may continue for some time even if the spread of the virus seems contained; (2) the deteriorating global economic outlook would likely slow the recovery in traffic and consumer spending, even if travel restrictions are eased; and (3) the coronavirus outbreak is also weakening the credit profile of airlines, which have been drastically cutting capacity. As events continue to unfold, there is a higher than usual degree of uncertainty around the length of travel restrictions and drop in travel demand. Hence, it is difficult to predict the overall traffic volumes for 2020.

Nevertheless, Moody's currently assumes that the decline in BAC's passenger traffic will be at least 30% in the financial year ending December 2020, driven by dramatic declines in the first half of the year and a recovery in the second half albeit phased over the period. The negative outlook takes account of BAC's rising credit and liquidity risks due to the sharp decline in traffic as a result of implementation of travel restrictions and the significantly weaker credit profile of its carrier base.

Notwithstanding the significantly reduced cash flow over at least the next few weeks, BAC remains a key infrastructure provider with a potential for a strong recovery once the coronavirus outbreak and its effects have been contained.

BAC's current Baa1 rating reflects (1) the strong business profile of Brussels Airport as the largest airport in Belgium with limited competition within its core catchment area; (2) a transparent regulatory regime that includes a five-year price agreement between Brussels Airport and airline customers until 2021; (3) the resilience of its core origin and destination traffic; (4) the largely constraint-free environment in which BAC operates, which provides management with the scope to efficiently meet the needs of airlines and passengers, and relatively low maintenance capital expenditure requirements; and (5) debt structural features that provide for the treatment of BAC's shareholder loan as fully subordinated for credit quality assessment purposes and have an element of senior debt protection.

However, BAC's ratings also reflect the following challenges: (1) significant on-going negative impact from travel restrictions related to the Covid-19 outbreak on BAC's operating performance and uncertainties as to the timing and level of passenger recovery, (2) BAC's exposure to European airlines the credit quality of which is rapidly weakening as a result of the outbreak, and in particular to Brussels Airlines, a subsidiary of Deutsche Lufthansa Aktiengesellschaft (Ba1, RUR Down) which is currently going through a reorganization, (3) planned increase in expansionary capex expected to reduce free cash flow generation, although the programme is largely scalable , and (4) BAC's shareholder friendly financial policy, albeit not at the expense of financial stability.

LIQUIDITY AND DEBT COVENANTS

BAC's liquidity position was good prior to the coronavirus outbreak. However, traffic reduction as a result of interruption in flight activity will result in significantly lower cash flow. As of end-February 2020, BAC had approximately EUR 520 million of cash on balance sheet and EUR 600 million available under revolving credit facilities due in December 2024. The company faces a EUR 500 million debt maturity this year in July when the 2013 Eurobond is due. Moody's expects the company will be able to cover upcoming debt maturities and other commitments with its available resources taking into account the company's steps in reducing operating and capital expenditures. BAC's debt documentation includes maintenance financial covenants which historically had significant headroom compared to BAC's reported ratios. While Moody's expects that headroom will erode materially as a result of the reduction in earnings driven by travel restrictions the agency expects the company will remain in compliance with covenants for the foreseeable future.

Factors That Would Lead to an Upgrade or Downgrade of the Ratings:

The outlook on BAC's ratings could move to stable in the scenario of a sustainable improvement in operating environment and traffic recovery such that the company's FFO/Debt ratio are expected to remain solidly in the mid-teens as a percentage terms. Conversely, BAC's ratings could come under downwards pressure if BAC's FFO / Debt ratio was to decline on a sustained basis below the low teens in percentage terms. This could result from an extension of travel restrictions or the loss of a significant portion of traffic due to airlines failure.

The methodologies used in these ratings were Privately Managed Airports and Related Issuers published in September 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1092224, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Brussels Airport Company NV/SA is the owner and operator of Brussels airport, which is Belgium's major airport. Brussels Airport Company NV/SA is 25% owned by the Belgian state (Aa3 stable), 39% by Ontario Teachers' Pension Plan and 36% by Macquarie. In March 2019 Macquarie announced that it had agreed the sale of its stake to a consortium comprised of APG Asset Management (APG), Queensland Investment Corp (QIC) and Swiss Life.

LIST OF AFFECTED RATINGS

Affirmations:

..Issuer: Brussels Airport Company NV/SA

....Senior Secured Medium-Term Note Program, Affirmed (P)Baa1

....Senior Secured Regular Bond/Debenture, Affirmed Baa1

Outlook Actions:

..Issuer: Brussels Airport Company NV/SA

....Outlook, Changed To Negative From Stable

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 outcome 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.

Paco Debonnaire
AVP-Analyst
Infrastructure Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Andrew Blease
Associate Managing Director
Infrastructure 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.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH  CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND  OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES  ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY'S.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

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Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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