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Rating Action:

Moody's confirms eDreams' B3 corporate family rating ; changes outlook to negative

01 Jul 2020

Paris, July 01, 2020 -- Moody's Investors Service, ("Moody's") has today confirmed the B3 corporate family rating (CFR) of eDreams ODIGEO S.A. (eDreams or the company). The rating agency has also confirmed eDreams' probability of default rating (PDR) at B3-PD, and has confirmed the Caa1 rating on the €425 million senior secured notes due 2023. Concurrently, Moody's has changed the outlook to negative from ratings under review on the company's CFR, PDR and rating on the €425 million senior secured notes due 2023. This rating action concludes the review for downgrade that was initiated on 03 April 2020.

"The decision to confirm eDreams' rating at B3 and change the outlook to negative reflects the significant impact that the coronavirus outbreak and the ensuing economic downturn is expected to have on the company's financial performance during the course of 2020" said Fabrizio Marchesi, Vice President-Senior Analyst and Moody's lead analyst for the company. "That said, it also takes into account the expectation of a gradual recovery in travel volumes from 2021 onwards and the company's adequate liquidity position" added Mr. Marchesi.

RATINGS RATIONALE

Although eDreams performed well in the period to December 2019, achieving, for instance, a Moody's-adjusted (gross) debt/EBITDA ratio of 3.5x as at 31 December 2019, its credit quality is expected to deteriorate significantly going forward because of the impact that coronavirus-related travel restrictions are having on bookings and hence earnings and cash flows. The rating agency estimates that the company's Moody's adjusted EBITDA will fall towards €30-35 million in its fiscal year ended 31 March 2021, from €122 million in the LTM period to December 2019, with Moody's adjusted (gross) leverage increasing to around 16x as at 31 March 2021.

The company is expected to benefit from an improvement in air traffic volumes, which are anticipated to gather pace into the company's fiscal 2022 and lead to a recovery in Moody's adjusted EBITDA towards €75-85 million, and an improvement in Moody's adjusted leverage towards 7x, by fiscal year end 31 March 2022. While this leverage will remain high for the B3 rating, this is partially offset by eDreams' adequate liquidity. Liquidity amounted to €241 million at the end of December 2019, and is expected to cover the cash outflows related to an unwind of the company's net working capital during the course of the first half of 2021 and until an improvement in travel bookings take place.

eDreams' B3 CFR is constrained by (1) the company's geographic concentration in Southern Europe and France, which together represented around half of its revenue; (2) industry risks, including value chain disintermediation from airlines or other intermediaries; (3) exposure to paid search costs and overall sensitivity to variable costs per booking; and (4) the risks of exogenous shocks (including terrorism and pandemics).

Nevertheless, the company's rating benefits from (1) good competitive positioning within the European OTA industry, particularly within the flight segment, and in the company's main markets of France, Spain, Italy, Germany, the UK and the Nordics; and (2) continued migration to the online travel market from high-street travel agencies.

Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact of the breadth and severity of the shock, as well as the expect impact on the credit quality of the company.

From a governance standpoint, eDreams, as a listed entity, provides more transparency when compared to similarly-rated, privately held companies. Its board is composed of nine members and is somewhat diversified - apart from 4 proprietary members (2 each from Ardian and Permira), it is also composed of the CEO, the CFO and 3 independent directors (including the chairman of the board).

LIQUIDITY

Moody's views eDreams' liquidity as adequate. The company's liquidity consisted of €72 million of cash on balance and a largely undrawn €175 million revolving credit facility (RCF) as at 31 December 2019. Although we anticipate a significant portion of this liquidity will be used to fund working capital outflows, we also expect liquidity to reach a trough during the company's fiscal first quarter and rebuild as travel volumes recover, albeit slowly, from June 2020 onwards.

Importantly, management secured a waiver on the RCF's springing gross leverage covenant for fiscal 2021. This covenant is set at 6x gross leverage, and tested if the RCF is drawn by more than 30%. A breach of this covenant constitutes an event of default.

STRUCTURAL CONSIDERATIONS

The company's capital structure consists of (1) a €175 million super-senior revolving credit facility maturing in 2023; and (2) €425 million of senior secured notes also maturing in 2023.

The senior secured notes rank behind the super-senior facility and their security is limited largely to share pledges.

RATING OUTLOOK

The negative outlook is driven by the significant uncertainty regarding the depth and duration of the current decline in global demand for travel related services and any associated rebound in travel volumes across global regions and within regional borders.

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

Positive rating pressure is not expected in the short to medium term. However, the rating could be stabilized if (1) it becomes clear that the impact of the coronavirus epidemic on travel volumes and economic activity will be less pronounced than anticipated; (2) Moody's-adjusted leverage is forecast to improve to around 5.0x on a sustained basis; (3) cash flow generation turns positive on a sustained basis, and (4) liquidity is maintained at an adequate level.

Conversely, negative rating pressure could occur if (1) travel volumes fail to recover to the degree currently anticipated, leading to a more significant or prolonged decline in profitability and a deterioration in interest cover to below 1.5x; and (2) Moody's-adjusted leverage remains above 6.0x and if this is not sufficiently compensated by positive Moody's adjusted free cash flow (FCF) or adequate liquidity. A sustained deterioration in the company's liquidity or heightened concerns regarding the ability of the company to meet its obligations as they fall due could also lead to negative rating action.

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

eDreams is the largest OTA in the European flight segment. It was formed in 2011 when Axa (now Ardian) and Permira acquired Opodo and merged it with their existing portfolio travel companies to create a European rival to Expedia Group, Inc. eDreams was listed in Spain in 2014. In fiscal 2019, the company reported revenue and company-adjusted EBITDA of €551 million and €120 million, respectively.

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.

Fabrizio Marchesi
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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