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Rating Action:

Moody's downgrades Comet Bidco's CFR to Caa1; outlook is negative

20 Jul 2020

London, 20 July 2020 -- Moody's Investors Service, ("Moody's") today downgraded Comet Bidco Limited's (the holding company of the restricted group that owns Clarion Events or "Clarion") corporate family rating (CFR) to Caa1 from B3 and probability of default rating (PDR) to Caa1-PD from B3-PD. Concurrently the B3 ratings of the outstanding GBP307 million senior secured term loan B1 due 2024 and $410 million senior secured term loan B2 due 2024, and the GBP75 million revolving credit facility due 2023(RCF) have also been downgraded to Caa1. Outlook on all ratings is negative.

The ratings downgrade reflects the pronounced pressure on Clarion's revenue and EBITDA in FY2021 (fiscal year ending 31st January 2021) driven by the cancellation and delays of its trade shows globally, due to the coronavirus outbreak. It remains unclear at this stage if the company's key trade shows will be held as currently planned from September onwards.

"Clarion's leverage is set to deteriorate meaningfully in FY2021 and its liquidity position could become very tight over the coming quarters if cash flow generation turns out to be weaker than we currently expect. Moreover, the prospects of recovery in FY2022 are also highly uncertain", says Gunjan Dixit, a Moody's Vice President -- Senior Credit Officer and lead analyst for Clarion.

This rating action concludes the review for downgrade initiated on Clarion's ratings on 1 April 2020.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

The coronavirus outbreak will likely have a more material impact on the company's operating performance and liquidity in FY2021 than previously estimated when the ratings were placed under review for downgrade in April 2020. Since then, the group has cancelled and postponed most of the shows that had been initially scheduled to run between April and September 2020 globally.

Clarion did not run any shows in April or May and expects its first shows since the disruptions to run in September, with a return to a comprehensive calendar from October 2020. Moody's now estimates that Clarion's revenue could reduce by about 50% to around GBP200 million in FY2021 compared to GBP400 million in FY2020. The higher than originally anticipated lost revenue, as well as coronavirus related costs will deplete the company's reported EBITDA (after coronavirus related losses) in FY2021 to around GBP 35 million (compared to GBP 112 million in FY2020), despite management's comprehensive cost-cutting actions. Clarion's free cash flow (after capex and working capital) will also be negative in FY2021 by around GBP 60 million, leading to increase in gross debt. Moody's forecasts are based on the assumption that the events scheduled from October go ahead as planned, and bookings for calendar 2021 events continue. Moody's currently expects the company's leverage to spike to 18x in FY2021 with some recovery in FY2022, yet remaining high at around or over 10x.

There remains a high degree of uncertainty about recovery in the second half of FY2021 and in FY2022. Moody's currently expects that the shows currently scheduled from October 2020 will go ahead. However, shows will run at reduced capacity as social distancing measures are implemented, and health and safety concerns could force some exhibitors to avoid attending face-to-face events.

To survive this difficult period, Clarion has adopted a prudent strategy - (1) to defer events where it can (rather than cancel) and move committed customers with the show; (2) where cancellation is the only option, move the customers booking and any prepaid revenues into the next years' show; (3) work with customers to minimize refunds and with suppliers to delay payments; (4) minimize any non-recoverable sunk costs; (5) explore potential savings of direct and indirect costs; and (6) continue to sell and collect revenues on the shows in the second half of FY2021 and FY2022 shows where possible.

At the end of May 2020, Clarion had about GBP95 million of cash on the balance sheet, including the fully drawn GBP 75 million revolving credit facility (RCF) maturing in September 2023. Moody's positively recognizes that the cash balance was ahead of management's guidance in March 2020, helped by the company's efforts towards continued collection of payments, cost-cutting measures, and minimal refunds to date. However, Moody's expects that until September, Clarion's EBITDA and free cash flow will likely be constrained and the company will need to rely on its cash balance to meet its needs. This will leave the company with limited headroom for any operational under-performance or unanticipated working capital cash outflows. Moody's estimates that cash interest of about GBP23 million is also due to be paid between September and November 2020.

While the company's liquidity profile appears tight, Moody's takes some comfort from the fact that Clarion's indirect controlling shareholder, Blackstone Capital Partners (Cayman) VII, LP, part of The Blackstone Group Inc., has provided a letter confirming that, for a period of a year from the date of the FY2020 annual report, it will provide support to the company up to a fixed amount, if required. However, the form and level of support remain highly unclear at this stage. Moody's also acknowledges that Blackstone Capital Partners (Cayman) VII, LP, has confirmed that for a period of a year, it does not intend to undertake any decision or action, in its capacity as an indirect controlling shareholder of Clarion, which would reasonably be expected to negatively affect the company's ability to continue as a going concern.

Clarion faces no large debt maturities or refinancing risks in the near term. There is a springing covenant that applies to the RCF and is tested when it is more than 40% drawn. The covenant is set at a maximum senior secured leverage to EBITDA ratio of 10.2x. The covenant definition allows exceptional coronavirus-related losses to be excluded from the EBITDA calculation. We therefore forecast Clarion will have some headroom under the covenant over the next 12 months.

ESG CONSIDERATIONS

The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and high asset price volatility are creating an unprecedented credit shock across a range of sectors, regions and markets. 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 rating action reflects the impact on Clarion of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

RATIONALE FOR NEGATIVE OUTLOOK

The negative rating outlook reflects the uncertainty around the resumption of events from September 2020 as well as the weak liquidity profile of the company.

Stabilisation of outlook would require (1) resumption of Clarion's events from September onwards and company's performance in line with Moody's base case and (2) sufficient liquidity buffer to be maintained throughout FY2020 and beyond.

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

Negative pressure on the rating could develop should (1) the company's leverage does not improve materially (Moody's-adjusted gross debt/EBITDA, smoothed for biennial events) beyond FY 2021, (2) liquidity deteriorate as a result of a prolonged weakness in the underlying business performance and/ or (3) there be a more permanent reduction in demand for its shows beyond FY2021.

Positive pressure on the rating could develop over time should Clarion's leverage (Moody's-adjusted gross debt/EBITDA, smoothed for biennial events) fall below 7.5x on a sustained basis as a result of recovery in operating performance and its liquidity position appears comfortable.

LIST OF AFFECTED RATINGS

Downgrades:

..Issuer: Comet Bidco Limited

....Probability of Default Rating, Downgraded to Caa1-PD from B3-PD

....Corporate Family Rating, Downgraded to Caa1 from B3

....BACKED Senior Secured Bank Credit Facility, Downgraded to Caa1 from B3

Outlook Actions:

..Issuer: Comet Bidco Limited

....Outlook, changed to Negative from Ratings Under Review

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

Clarion Events is a UK-based events business that organizes and runs approximately 220 events worldwide. Its revenue is diversified across geographies, with roughly equal proportions coming from Rest of the world (36%), Europe (32%) and North and South America (32%) in a normal year of operations. In FY2020, the company generated revenues of GBP 414 million and EBITDA of GBP 112 million.

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.

Gunjan Dixit
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Peter Firth
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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