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Rating Action:

Moody's downgrades Amec Foster Wheeler's ratings to Ba2; stable outlook

31 Aug 2016

Frankfurt am Main, August 31, 2016 -- Moody's Investors Service, ("Moody's") has today downgraded to Ba2 from Ba1 the Corporate Family Rating (CFR) and to Ba2-PD from Ba1-PD the probability of default rating of Amec Foster Wheeler Plc (AMFW) and has changed the outlook assigned to those ratings to stable from negative.

RATINGS RATIONALE

"The downgrade of Amec reflects Moody's expectation for further weakness in the oil & gas space and the potential for further restructuring costs which continue to drag on profitability, cash flow and leverage," says Scott Phillips, a Moody's Vice President -- Senior Analyst and lead analyst for Amec Foster Wheeler Plc. "Depressed commodity prices continue to negatively influence the business, particularly in North America while a strategic shift following a change in management is forcing the company to further right size its operations" added Mr. Phillips.

At the end of June 2016, AMFW's leverage (as measured by Moody's adjusted debt / EBITDA) was 5.8x, significantly above our expectations for the previous rating, for which we expect 3.5x or lower. The increase in leverage, from around 4.5x at the end of 2015, was mainly driven by the incurrence of further restructuring costs and other one-off charges which collectively amounted to around EUR 45 million. In Moody's view, while some of these charges relate to the ongoing integration of Foster Wheeler (completed in November 2014), it also reflects the ongoing weakness in contract activity in the oil & gas end market, particularly in North America. In this respect, AMFW reported revenues in H1-2016 that were more than 50% lower for this business area than in H1-2015, which, however, was partially offset by increasing demand from clean energy services, although at lower margins. While Moody's had previously expected restructuring costs to diminish in H2-2016, the agency now believes such charges will remain elevated into 2017 and beyond as the company repositions itself in the low commodity price environment and following a strategic shift under new management.

While Moody's continues to expect AMFW to execute around GBP 500 million of asset disposals, the agency believes that the negative earnings impact from these transactions may be above its original forecasts. This reflects primarily a lower than anticipated valuation of the group's Global Power Group (GPG) business, and, therefore, requires more asset disposals than initially planned. Previously, Moody's had expected a valuation of around GBP 250-300 million for GPG but this has since been lowered to around GBP 200 million, which is moderately above the book value of the business on AMFW's balance sheet. In this respect, Moody's notes that AMFW incurred impairment charges of GBP 261 million in H1-2016 pertaining to the revised accounting valuation of GPG. Nevertheless, the rating agency continues to believe that AMFW's disposal strategy is achievable and that the bulk of the sale proceeds will be applied towards debt reduction. In addition to the partial re-payment of the group's revolving credit facility (RCF) with a reduction in working capital, Moody's believes AMFW will be able to de-lever towards 4x by the end of 2017 as a result of asset disposals.

The stable outlook reflects Moody's expectation that the asset disposal programme will be successful and that proceeds will be applied to debt reduction which should result in the deleveraging of the group. The stable outlook also anticipates that ongoing restructuring costs will diminish over time, as well as the associated impact on our metrics.

WHAT COULD CHANGE THE RATING UP / DOWN

Upwards pressure would exist if the company's profit margins were to improve from current levels (Moody's adjusted EBITA margin of around 5.2% in 2015) and its debt metrics were to sustainably improve, as evidenced by adjusted leverage (debt to EBITDA) falling sustainably below 3.5 times in conjunction with strong free cash flow generation.

Conversely, negative rating pressure could develop if AMFW is unable to fully execute its intended disposal plan, if there is a further deterioration in operating margins or if the group were to generate negative free cash flows such that debt / EBITDA was sustained above 4x. Additionally, a deterioration in the group's liquidity profile would also be a factor for a downgrade.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Construction Industry published in November 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Scott Phillips
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Anke Rindermann
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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