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Rating Action:

Moody's changes to negative the outlook on Aena´s rating

31 Mar 2020

Madrid, March 31, 2020 -- Moody's Investors Service, ("Moody's") Moody's Investors Service (Moody's) has today changed the outlook on the A3 long-term issuer rating of Aena S.M.E., S.A. (Aena) to negative from stable. The rating was affirmed.

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 Aena´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. There are, however, high risks of more challenging downside scenarios. The negative outlook assigned to Aena's rating reflects the company's rising credit and liquidity risks due to the sharp decline in traffic as a result of the implementation of travel restrictions, the uncertainties around traffic rebound prospects as well as the significantly weaker credit profile of its carrier base.

Notwithstanding the significantly reduced cash flow over at least the next few weeks, Aena continues to exhibit strong financial metrics and remains a key contributor to the economic, social and territorial cohesion of Spain. Airport infrastructure is considered a strategic sector by the Spanish government and the company has the potential for a strong recovery once the coronavirus outbreak and its effects have been contained.

Aena's A3 long-term issuer rating reflects a view of its standalone credit quality expressed as an a3 baseline credit assessment (BCA). Given the multiple channels of contagion between sovereign and corporate issuers and the fact that the Spanish government is a 51% shareholder in the company, Aena's rating is maintained at one notch above by the sovereign bond rating of Spain (Baa1 stable). Although Moody´s categorises Aena as a Government-Related Issuer, with High dependency and Moderate support scores, the agency does not assign any rating uplift for the possibility of extraordinary government support, given the company's rating is already positioned above the rating of the government of Spain.

More generally, Aena´s long-term issuer rating continues to reflect (1) its very strong market position as the owner and operator of a network of airports serving the entire needs of Spain; (2) a balanced regulatory settlement that provides certainty at least until 2021; (3) a diversified carrier base with a high proportion of origin and destination traffic and international passengers; (4) its well invested airports, with sufficient spare capacity; (5) its competitive aviation charges coupled with high EBITDA margins reflecting an efficiently run company and (6) a very strong financial profile.

LIQUIDITY AND DEBT COVENANTS

Aena's liquidity position was very good prior to the coronavirus outbreak. However, material traffic reduction as a result of interruption of flight activity will result in significantly lower cash flow. The company´s primary sources of committed liquidity (excluding facilities supporting Luton airport) are (1) cash and equivalents of around €550 million as of end of March 2020 and (2) a revolving credit facility in an amount of €800 million due in 2025. In addition to this liquidity, the company also has capacity to issue up to €900 million under its uncommitted Euro Commercial Paper (ECP) programme, of which €350 million has been issued to date. The group has debt maturities of around €630 million in 2020 and €545 million in 2021. Moody's expects that AENA will have sufficient liquidity, after taking into consideration all mitigating measures, for at least the next 12 months.

Also in view of the reduction of leverage in recent years, Moody´s expects Aena to maintain good headroom under its financial covenants for at least the next 12 months. As of December 2019, the company´s Net financial Debt/EBITDA stood at 2.4x against a covenant level of 7.0x. Similarly, the EBITDA/financial expenses ratio is expected to comfortably remain above the required level of 3.0x.

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

The negative outlook on the rating could be stabilised if, following the lifting of border and travel restrictions and a return to normal traffic performance, Aena's financial profile and key credit metrics improve to levels commensurate with the current rating, while the company exhibits a good liquidity profile.

As stated in its previous publications, Moody's does not think Aena can be rated more than one notch higher than the rating of the government of Spain.

Downward pressure on Aena´s rating could develop if (1) the company´s FFO/debt ratio were to decline to the mid-teens in percentage terms on a sustained basis; (2) its liquidity position deteriorates; (3) there was an increased risk of covenant breaches; (4) it appeared likely that the coronavirus outbreak had a more sustained detrimental impact on traffic levels, either because of travel restrictions or potential airline failures; or (5) there was a deterioration in the Spanish sovereign creditworthiness.

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.

Aena is the largest airport operator group in the world by number of passengers by virtue of its control of most airport facilities in Spain. Aena operates 46 airports and 2 heliports in Spain, which together handled 275.2 million passengers in the 12 months to December 2019. Through its subsidiary Aena Internacional, Aena has a controlling stake in the company holding the concession rights for the operation of London Luton airport, the fourth largest airport serving the UK capital. The group´s scope of consolidation also includes six airports in the North East of Brazil, for which Aena was awarded the concession in March 2019. Lastly, Aena holds equity stakes in companies operating airports in Mexico, Jamaica and Colombia. Aena is majority owned (51%) by the government of Spain.

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.

Corrado Trippa
Analyst
Infrastructure Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
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 Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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