London, 21 July 2020 -- Moody's Investors Service (Moody's) has today downgraded to Caa3 from
Caa1 the Corporate Family Rating (CFR) of Selecta Group B.V.
(Selecta). The rating agency has also downgraded Selecta's probability
of default rating (PDR) to Ca-PD from Caa1-PD, has
downgraded to Caa3 from Caa1 the company's €865 million senior secured
notes, €375 million senior secured floating rate notes and
CHF250 million senior secured notes, all due 2024, and has
downgraded to B3 from B2 the company's €150 million super senior
secured revolving credit facility (SSRCF) due 2023. The outlook
remains negative.
A full list of affected ratings can be found towards the end of this press
release.
RATINGS RATIONALE
The rapid spread of the coronavirus outbreak, deteriorating global
economic outlook, low oil prices and high asset price volatility
have created an unprecedented credit shock across a range of sectors and
regions. Selecta's business model is particularly affected by social
distancing measures in most of its countries of operation, which
have severely impacted both its public and workplace vending machines
offering.
Today's action reflects the impact on Selecta of the deterioration
in credit quality and liquidity which has left the company vulnerable
to shifts in market sentiment in these unprecedented operating conditions.
The company's capital structure looks increasingly unsustainable
with a restructuring likely in the near term.
Selecta's Moody's-adjusted (gross) debt/EBITDA ratio was
9.2x (including IFRS16) as of LTM March 2020 while EBITA/interest
expense was 0.6x. In the absence of a restructuring and
support from the sponsor, Moody's expects credit quality and
metrics to deteriorate significantly over the coming quarters.
Moody's expects Selecta to experience significant deterioration in its
liquidity position, on the back of a severe contraction in sale
volumes. Although the company's liquidity consisted of €110
million of cash on balance sheet as at 31 March 2020, with most
of the €150 million revolving credit facility drawn, Moody's
anticipate that a large portion of this liquidity will be used to fund
operations, leaving the company with tight liquidity. Moody's
expects the €50 million liquidity line recently provided by the sponsor
to be utilized in Q2 2020. The company may find it challenging
to pay the upcoming approximately €40 million interest due in October
2020.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Moody's regards the coronavirus outbreak as a social risk under its ESG
framework, given the substantial implications for public health
and safety.
Moody's also notes the recent changes to Selecta's management and Board,
with the latter no longer including any independent members.
STRUCTURAL CONSIDERATIONS
Selecta's debt structure comprises a €150 million SSRCF and approximately
€1.45 billion (euro equivalent) senior secured notes (SSN),
all issued by Selecta Group B.V. The SSRCF is rated at B3,
three notches higher than the SSN, at Caa3, reflecting its
priority ranking. Both the SSRCF and SSN are guaranteed by group
companies representing at least 80% of consolidated EBITDA and
are secured principally by share pledges over the guarantors, in
each case subject to legal limitations. The probability of default
rating (PDR) is one notch lower than the CFR because of Moody's
expectation of an imminent restructuring.
RATING OUTLOOK
The negative outlook reflects the severe disruption caused to the company's
operations and the uncertain path and timing of any recovery, and
the risk that the coronavirus outbreak may have longer-lasting
negative effects on consumer sentiment and purchasing power. The
outlook also reflects the weak cash position with limited sources of additional
available liquidity.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The rating is weakly positioned, and an upgrade therefore is not
expected in the near term. Positive pressure would build if the
likelihood of a restructuring is substantially reduced, the company
sustainably and significantly improves its liquidity headroom, and
operating performance stabilizes or improves.
The rating could be downgraded if there is a material worsening in the
company's prospects in respect of a restructuring and in expectations
for debt recoveries, or if there is further deterioration in liquidity.
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.
LIST OF AFFECTED RATINGS:
..Issuer: Selecta Group B.V.
Downgrades:
.... LT Corporate Family Rating, Downgraded
to Caa3 from Caa1
.... Probability of Default Rating,
Downgraded to Ca-PD from Caa1-PD
....Senior Secured Bank Credit Facility,
Downgraded to B3 from B2
....Backed Senior Secured Regular Bond/Debenture,
Downgraded to Caa3 from Caa1
Outlook Actions:
....Outlook, Remains Negative
COMPANY PROFILE
Selecta is the leading route based unattended self-service coffee
and convenience food provider in Europe by revenue, with operations
in 16 countries across Europe. It operates a network of more than
460,000 snack and beverage vending machines on behalf of a broad
and diverse client base, including private and public organizations.
Selecta is ultimately owned by KKR.
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.
Ramzi Kattan
Vice President - Senior Analyst
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
Richard Etheridge
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
