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Global Credit Research - 07 Mar 2011
$443 million of rated obligations
New York, March 07, 2011 -- Moody's Investors Service downgraded The Brink's Company's
("Brink's") senior unsecured rating to Baa3 from Baa2
and revised the outlook to stable from negative. The action stems
from cumulative pressure on the rating from leverage which increased as
acquisitions and share repurchases outpaced internal capital generation
and the prospects for interest coverage metrics to be at levels no longer
supportive of the prior rating category. In addition, due
to ongoing needs for reinvestment in the business, free cash flows
over the rating horizon were viewed as close to break-even,
limiting prospects for a reduction in debt levels. Moody's
perception of Brink's growth strategy includes further acquisitions
which, in turn, could require additional external funding.
The resultant credit profile was considered more reflective of the Baa3
Senior Unsecured to Baa3 from Baa2
$400 million unsecured bank revolving credit facility to Baa3 from
$43 million Peninsula Ports Authority of Virginia bonds,
guaranteed by Brink's, to Baa3 from Baa2
Brink's credit metrics were not well positioned in the Baa2 rating
category going into the second half of 2010 (The negative outlook stems
from November 2009). Although the company recorded encouraging
revenue and operating results in the fourth quarter, its guidance
for 2011 included both a decline in margins and higher capital expenditures,
primarily driven by attributes of recent acquisitions. During the
fourth quarter, Brink's announced two transactions which aggregated
$100 million. Those followed $75 million of acquisitions
in 2009 as well as completion of a share repurchase authorization in 2010.
Collectively those disbursements outpaced free cash flow generation and
led to a near doubling of funded debt over the course of 2010.
While Brink's may ultimately be successful in restoring its operating
margins, particularly in raising those in the more significant of
its recent acquisitions, Servicio Pan Americano de Protection,
S.A. de C.V. in Mexico, ("SPP"),
it will require further capital investment and other actions to do so.
Although SPP's earnings contributions are described as break-even,
the absolute level of consolidated segment profitability is expected to
increase following stronger fundamentals across the company's global
security businesses, benefits of restructuring actions taken to
date, and selective business exits. Yet, Brink's
capital expenditures (adjusted for capital leases) are likely to cause
consolidated free cash flow to decline at a time when fixed charges from
servicing its debt will increase, and interest coverage ratios were
already at levels suggestive of rating categories below Baa2. Furthermore,
Moody's expects Brink's to continue to employ acquisitions
in its growth strategy particularly to boost its presence in international
markets and adjacencies to its existing services such as commercial security
and payment processing. With reduced prospects for internal capital
generation, future transactions may require external funding or
erode liquidity. While future acquisitions may bring their own
respective earnings and cash flows, the requisite cushion to accommodate
the uncertain blend of earnings and cash flows combined with debt levels
that are unlikely to retreat was seen as better furnished at the lower
-- but still investment grade - rating of Baa3.
The Baa3 rating reflects Brink's market leadership across a number
of security related services which have been consistently profitable and,
historically, free cash flow generative. The rating recognizes
a globally diversified footprint with ongoing growth prospects linked
to GNP trends, still moderate leverage, and a satisfactory
liquidity profile. As a service company, margins are comparatively
thin and have been under pressure. Following the spin-off
of Brink's Home Security (which had stronger margins, but
limited free cash flow due to capital expenditures), Brink's
quantitative metrics were impacted by the global downturn's effect
on retail expenditures, diamond and jewelry shipments, structural
cost issues and a challenging industry environment in which to increase
The company's business model involves meaningful capital requirements,
some of which have been financed through operating and capital leases,
and it continues with certain legacy liabilities. Consequently,
Moody's adjusted metrics indicate higher leverage and lower interest
coverage than "as reported" numbers. In addition,
its end markets, service offering and growth prospects could be
divided between mature/developed regions (e.g. the US and
Western Europe) and higher growth in emerging/developing countries where
demand for its traditional services is rising. Prospects in the
former are lower from increasing use of electronic payment systems,
comparatively less robust economic activity as well as higher wage and
benefit costs and more intense competition. Consequently,
management focus in certain mature markets will be on cost structure,
quality differentiation and new services (e.g. CompuSafe)
and considering adjacent markets (transaction and payment services) to
maintain and build the business. Strategically, capital will
be deployed to sustain its business in developed markets but increasingly
towards emerging markets and to widen or deepen its presence in adjacencies,
most likely accomplished through acquisitions.
The stable outlook considers ongoing benefits expected from management's
restructuring actions and improving trends in the global economy.
Collectively, these should support revenues and ultimately offer
some lift to margins in both continuing and newly acquired operations
over the intermediate time-frame. The outlook also reflects
benefits of a good liquidity profile and a lengthened debt maturity profile
following the company's recent private placement.
Moody's would not anticipate any upward movement in the outlook
or ratings over the near term. However, an extended improvement
in financial performance through consistent earnings growth and material
free cash flow generation, resulting in consolidated debt/EBITDA
below 2.5 times, EBIT/interest above 4.5 times,
and free cash flow-to-debt exceeding 15% on a sustainable
basis could have positive rating implications. Conversely,
Adjusted debt/EBITDA above 3 times for extended periods, EBIT margins
sustained at or below 6%, EBIT/interest less than 3 times,
or an unexpected shift in financial policies aimed at aggressively returning
capital to shareholders could also have negative rating consequences.
The last rating action was on November 17, 2009 at which time Brink's
Baa2 rating was affirmed but the outlook was changed to negative from
The principal methodology used in this rating was Global Business &
Consumer Service Industry Rating Methodology published in October 2010.
The Brink's Company (BCO) provides security-related services with
operations in 50 countries. The company offers cash-in-transit
services, secure transportation of valuables, and related
logistics. Revenues in 2010 were approximately $3.1
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service information, and
confidential and proprietary Moody's Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
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.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's downgrades Brink's to Baa3; outlook stable
250 Greenwich Street
New York, NY 10007
No Related Data.
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