Madrid, June 24, 2020 -- Moody's Investors Service, (Moody's) has today confirmed
the Baa3 rating of the €653 million 5-year senior secured
bank credit facility of Azzurra Aeroporti S.p.A.
(Azzurra) and the Baa2 issuer rating of its subsidiary, Aéroports
de la Côte d'Azur (ACA), the airport operator in Nice,
Cannes and Saint Tropez. The outlook on the ratings have been changed
to negative from ratings under review. This concludes the review
for downgrade initiated by Moody's on 10 January 2020.
RATINGS RATIONALE
The rating confirmation reflects Moody's expectation that ACA and Azzurra
credit metrics may recover to levels commensurate with the current ratings
in the next two to three years. It also reflects the expectation
that the company will continue to implement measures aimed at restoring
its financial profile and maintaining a good liquidity position.
Notwithstanding the increasing duration and severity of the coronavirus
outbreak, and the ongoing uncertainty regarding the pace of recovery
in traffic, ACA is well positioned to benefit from a traffic recovery
over the next two to three years due to (1) the strategic importance of
Nice as one of the busiest airport in France, (2) the high proportion
of origin and destination passengers with no meaningful exposure to weak
airlines, and (3) a significant proportion of leisure traffic and
short-haul flights, predominantly domestic and from other
European countries.
The negative outlook assigned to ACA and Azzurra's ratings reflects
the group's continued credit and liquidity risks arising from the sharp
decline in traffic and the continued uncertainties around recovery prospects,
with the risk of an extended disruption to travel causing further strain
on the group's balance sheet and liquidity. The negative rating
outlook also reflects Moody's expectation that the contraction in cash
flow generation will result in a deterioration of key credit metrics,
below the levels considered commensurate with current ratings, until
2023.
The rapid spread of the coronavirus outbreak, severe global economic
shock, low oil prices, and asset price volatility 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 has been one of the sectors
most significantly affected by the shock given its exposure to travel
restrictions and sensitivity to consumer demand and sentiment.
Today's action reflects the impact on ACA and Azzurra of the breadth and
severity of the shock, and the broad deterioration in credit quality
it has triggered. Moody´s regards the coronavirus outbreak
as a social risk under its ESG framework, given the substantial
implications for public health and safety.
ACA was initially affected by the coronavirus outbreak in mid-March
when coronavirus cases started to increase in France and the government
implemented severe restrictive measures. As the pandemic spread
across Europe and globally, a number of countries started to introduce
travel bans and confinement measures. As a result, ACA´s
experienced a substantial disruption in operations with traffic declines
of around 99% in April and May, compared to the previous
year, which severely hit aeronautical and commercial revenues.
In response to the crisis, ACA has implemented a series of cost-cutting
initiatives which included the reorganisation of the airports' facilities,
the reduction in labour costs, the elimination of non-essential
expenses and a significant revision of the investment plan. Since
the start of June, air travel restrictions have been gradually eased
in most European countries and airlines are planning to commence or ramp
up capacity during the summer season.
In this context, Moody's has revised its traffic assumptions
for European airports recognising that the impact of the reduction in
global air travel will not be even and will vary depending on the airport
location, its airline mix and type of traffic served. Moody's
expects that after the period of severe cuts in passenger traffic observed
since March there will be a very gradual recovery in passenger volumes
over the second half of 2020, but remaining severely depressed over
2020 and 2021. Domestic flights will recover earlier, with
a slower return for international and long haul flights. Moody's
base case assumes that passenger volumes will not recover to 2019 levels
until 2023 at the earliest. However, there are high risks
of more challenging downside scenarios, including deeper reduction
in passenger volumes and a slower recovery.
Moody's currently expects that the decline in ACA's passenger
traffic will amount to around 55%-65% in the financial
year ending December 2020 compared to the previous year. Notwithstanding
the expectation of significantly reduced cash flow over at least the next
two years, ACA´s airports remain an important infrastructure
provider in France with a potential for recovery once the coronavirus
pandemic and its effects have been contained.
More generally, the Baa3 rating of Azzurra primarily reflects the
underlying credit quality of ACA, which benefit from (1) the strong
fundamentals of Nice airport as the largest regional airport in France,
with limited competition; (2) the high proportion of origin and destination
passengers and diversified carrier base; (3) the solid traffic profile
demonstrated in the past, characterised by a significant traffic
component from EU countries and short-haul flights; and (4)
the expectation that future tariff increases, even if moderate,
will allow ACA to improve its profitability over time. These strengths
are partially offset by (1) Azzurra group's high financial leverage;
and (2) a degree of structural subordination of the creditors at Azzurra
Aeroporti coupled with the significant presence of minority shareholders
at ACA.
The Baa3 rating further takes account of the supportive features of the
debt documentation, which offer protections to creditors and limit
Azzurra's ability to upstream cash to its shareholders subject to
leverage tests, providing for some de-linkage from the credit
quality of Atlantia S.p.A., a majority shareholder
of Azzurra.
The Baa2 issuer rating of ACA takes account of the overall credit quality
of the Azzurra group, given absence of specific creditor protection
features that would isolate ACA from the wider group. This view
is based on (1) the terms of the current shareholder agreement and associated
arrangements; and (2) the terms of ACA's funding arrangements,
which together do not provide sufficient de-linkage from the wider
Azzurra group's credit quality.
LIQUIDITY AND DEBT COVENANTS
ACA's liquidity position was solid prior to the coronavirus outbreak.
However, material traffic reduction as a result of interruption
of flight activity resulted in significantly lower cash flows.
As of December 2019, ACA had approximately EUR28 million of cash
on balance sheet. Moody's understand that in the first half
of 2020 ACA has drawn a total of EUR105 million from its available bank
loans and from a new signed loan with French financial institutions.
As of December 2019, Azzurra had EUR18 million cash on balance sheet.
In addition, as required under the terms of its bank loan,
Azzurra has a letter of credit from an investment grade counterparty equal
to the next six-month's worth of interest payment.
Because debt repayments in the next 12 months are relatively limited,
Moody´s expects that ACA and Azzurra would be able to cover all
its cash requirements, including debt and interest payments,
even if the group earnings were to significantly decrease. Moody's
notes that Azzurra's bank loan matures in November 2021 and expects
the company to address such refinancing well ahead of time.
Azzurra's debt documentation includes a step-down net debt/EBITDA
financial covenant tested as of end-June and end-December
on a historical basis. Moody's expects the ratios of Azzurra group
to significantly deteriorate with a high probability of breaching its
financial covenant in the next testing period. Azzurra has already
received approvals to waive its financial covenants until December 2020.
In addition, ACA's debt documentation includes a set of financial
covenants. Depending on the actual traffic recovery in the second
half of the year, there is a probability of the company breaching
its covenant levels at end-December 2020. Moody's assumes
that the company will take prompt actions in order to avoid any debt acceleration
in the group. In this regard Moody's positively notes the shareholders'
commitment to provide timely and adequate support, if needed.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the current negative outlook, upward rating pressure is unlikely
in the near future. The outlook of ACA and Azzurra could be stabilised
if following a return to normal traffic performance, (1) the group's
financial profile and key credit metrics sustainably return to levels
commensurate with the current rating; (2) there was sufficient clarity
around the tariff evolution over the medium to long term; (3) Azzurra
was successful in addressing its upcoming debt maturity; and (4)
the group exhibit a strong liquidity profile.
The ratings could be downgraded if (1) it appeared likely that the group's
credit metrics would not return to the levels commensurate with the current
rating; (2) ACA was not allowed to increase tariffs in order to restore
its profitability; (3) the group's liquidity profile deteriorates;
(4) there was an increased risk of extended covenant breaches; or
(5) it appeared likely that the coronavirus outbreak had a more severe
or sustained detrimental impact on traffic levels. A material deterioration
in the credit quality of Atlantia could also exert downward pressure on
the group's credit profile.
The principal methodology used in these ratings was Privately Managed
Airports and Related Issuers published in September 2017 and available
at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1092224.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Azzurra Aeroporti S.p.A. is the holding company of
Aéroports de la Côte d'Azur, whose main assets are
Nice and Cannes Mandelieu airports operated under a concession expiring
on 31 December 2044 and Saint Tropez airport (held freehold). Azzurra
is owned by a consortium comprising the Italian infrastructure group Atlantia
S.p.A. (52.7%), Aeroporti di
Roma S.p.A. (7.8%), EDF Invest
(19.4%) and the Principality of Monaco (20.1%).
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.
Erica Gauto Flesch
Vice President - Senior 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
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Spain
JOURNALISTS: 44 20 7772 5456
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